How was your week? Besides the financial turmoils, my head was spinning with the migraine attacks! Makes me feel " you spin me right around baby right around like record baby! " Argghh!
In the previous EUR/USD weekly review, we noted that from a technical perspective, the 1.44 continued to provide a strong support / resistance. With both SMAs almost flat, possibility of a sustained momentum seemed small. Fundamentally, we saw trouble brewing in both markets. In the Euro Zone, the apparent lack of strong demand for the Euro currency despite the debt ceiling problem in US suggested that investors remained apprehensive towards the Euro Zone. In the US, the debt ceiling crisis had made global headlines and threatened to derail the global economy.
Technical Analysis
Looking at the EUR/USD chart above, we see that the 1.44 line continued to play an important role in capping further bullish advances. The sharp dip followed by the subsequent climb on the last two days of the week was probably fueled by fundamental factors.
SMA 20 = Pointing upwards
SMA 50 = Point downwards
The SMAs are painting an interesting situation whereby the medium term shows a bearish possibility while in the short term, a bullish. This is typical of volatile conditions in the currency exchange market where the currency pair direction is not focused but highly volatile. It is important to note that the SMA 200 which indicates long term trend possibility is still bullish and is fast approaching the price action. As it often act as a strong support and resistance, Thursday's dip might have be stopped by it too. Definitely a region to look out for this coming week.
Fundamental Analysis
The Euro Zone continues to be plagued by confidence issues. Investors have spoken and by large globally, equities are being punished with plunging dives unseen since the financial crisis of 2008. A contributing factor may also be the pessimistic but strongly believed realistic warning by the head of the European Commission that the debt contagion has now gone beyond the Euro Zone peripheral countries. This suggests that Spain and Italy are definitely now on the target board. While the European Central Bank restarted it's assistance program to purchase bonds, Spain and Italy were excluded and this move left many investors stumped. Comments were made that the ECB needed to know where the real troubles are. This probably caused further dents in the sentiment towards the Euro Zone.
Across the Atlantic, while the US settled the debt ceiling crisis, many investors believed that the damage had already been done. While not directly economic perhaps, but rather that the US government had acted undesirably during this crisis with it's constant disagreements and lack of combined resolve towards the situation. This might be further validated with the Standard & Poor's downgrade of the US's AAA credit rating to AA+ and slapping it with a negative outlook. The reasons cited include the political process and failure to sufficiently cut expenditures or increase revenue to solve the huge budget deficits.
The market is in a fragile condition. The better than expected US Non-Farm Payroll did little to stop the fallout. By noon, many rallies fizzled out. The downgrade by S&P probably raised the precarious condition by a notch. The currency pair's direction is questionable and volatility may continue. Extreme caution and proper money management is highly advised. Important economic events such as the federal fund rates are to be watched out for.
Trade Safely.
Related Forex Articles from the Koala Forex Training College.
- US Debit Ceiling Crisis
- Over trading is a forex disaster
- Proper money management may be the holy grail
- The story of a margin call, Tom
