EUR/USD Weekly Review 3 Jan – 7 Jan 11

Simultaneous Release at TheGeekKnows.com – Learn Forex Trading and view EUR/USD Reviews. Good day forex trading koalas. In the previous EURUSD weekly review we noted that China’s manufacturing growth slowed in December and it was the first time in five months. As we all know that many investors see China as a major contributor to the global recovery, this might trigger concerns and hence risk aversion. A fund manager was earlier reported as mentioning that China is a main focus for 2011. Looking at the EUR/USD chart above we see a bearish week. The week started with a slight forex gap. The S&P 500 was in the green probably due to the series of good economic data from the US. The US ISM Manufacturing PMI came up to be higher than the previous month and it helped to boost sentiments. Liquidity remains low. As we approached midweek, reports surfaced that China remains committed to supporting the Euro Zone. This might have helped kept sentiments holding despite an increase in German Unemployment. Spain is planning for a round of banks stress tests and this may open up a can of worms. Midweek saw the fears of the European Deficit Crisis again. The EUR/USD dipped and made a double top as correctly identified by Senior Koala Masoud in the H1 timeframe. The FOMC minutes also suggested that the current recovery for the US economy needs to do better. Towards the end of the week, concerns regarding the worst than expected US Unemployment Claims weighted down on sentiments. Furthermore with the US Non-Farm Payroll due, apprehensions were mounting. *** The US Non-Farm Payroll came out at 103K. This was much lower than the expected 159K jobs which many believed is already a moderate estimate. The US NFP is a closely watched statistic due to it being concerned with employment. As i always mentioned, employment = consumer spending = economic growth! While the drop to 9.4% unemployment rate helped to mitigate some concerns, the bottom line is that it remains above 9%. In a testimonial session to the Senate Budget Committee, Mr Bernanke mentioned that he sees moderately stronger expansion in 2011 for the US economy. While that is the case, he feels that it doesn’t change the persistently high unemployment immediately and that is a concern towards the recovery. Dear koala readers if you are a long time student of the class you will know how much i believe that sentiments is a major factor. The comments by Bernanke gave the home run to the risk averse folks and we can see a drop of the EURUSD to below 1.3. Furthermore if the media continues to pick up on this focus, we may see the attention shift back to the woes of the American economy and the Euro Zone will get a breather . . for now. Risk aversion may be a focus. The bottom line i feel is that while the recovery has come along nicely now, investors and consumers still remember the pain of the 2008-2009 financial crisis and hence will be extremely wary regarding any apparent issues. Next week will probably bring us normal liquidity and hence we need to see if the bearish momentum continues on. Economic data lineup includes the Euro Zone Minimum Bid Rate and the US Retail Sales. You can find the list of the various economic releases in the Economic Calender below. Trade Safely. Related Forex Articles from the Koala Forex Training College . Risk aversion and the forex market Forex Gaps What Why How Support and Resistance lines are never a single pip US Unemployment Crisis Read more Forex Articles and Views by The Koala at TheGeekKnows.com – Learn Forex Trading and view EUR/USD Reviews.

Year End Highs!

As we near the end of 2010, both US stocks and commodities are at 2-year highs.  Part of these moves is due to economic recovery, the other part due to accommodative US monetary policy.  In other words, a cheap Dollar.
But will this continue into 2011?  Well at some point the scam that is the official inflation report will be unable to contain rising prices, even if housing continues to fall.  Just yesterday we saw lower than expected housing prices, though this should not come as a surprise given the fragile recovery.
This means we are likely to see higher interest rates both here in the US and abroad.  Countries that are counting on austerity measures to slow down demand may be deluding themselves as folks have to eat.  No one is going to care that TV prices have come down if milk cost $6 a gallon and it costs $4 gallon in gas to get to the store.  Rising interest rates will put further pressure on housing prices, so next year is going to be interesting from a monetary policy perspective.
In Germany, CPI data has already come in higher than expected this morning and while not at critical levels, could be a sign of things to come.
At what point will public backlash influence weak-willed politicians, or will calls for action fall on deaf ears?  China is attempting to control inflation by every means policy EXCEPT monetary policy.  Eventually this dam will burst and I can foresee social tensions rising.
Are we having fun yet?  Today is pretty much finished with economic news, so let’s see if the risk appetite that we are seeing this morning continues throughout the day.
In the forex market:
Aussie (AUD):  The Aussie is mostly higher as risk appetite has increased due to a weak USD.  The Aussie looks as though it may be putting a double top vs. USD which could signal a reversal.  (Click chart to enlarge)


Kiwi (NZD):  The Kiwi is higher across the board as the market is anticipating NZ as the next commodity currency to raise interest rates.  Because markets are forward-looking, the Kiwi is faring better then the Aussie today.
Loonie (CAD):   The Loonie is taking its cues from the oil which is “lower” to 91.25.  I guess market participants read my blog yesterday and saw the folly of their investment decisions.  Oil inventories will likely show a build-up in supply despite the recent cold weather.
Euro (EUR):  The Euro is mixed this morning as higher than expected CPI data in Germany (1.7% vs. an expected 1.5%) and Dollar weakness is offset by a stronger Pound and Yen.
Pound (GBP):  The Pound is higher this morning as reports show that mortgage repayments in the UK are taking place as expected.   The “wait and see” approach adopted by the BOE may result in further inflation before the effects of the austerity measures begin to kick in.
Dollar (USD):   The Dollar is weaker across the board to start the day as risk appetite appears to have heightened.  Yield-seeking investors who may seem confident that the lack of economic data supports an economic recovery theme may be set up for a fall.
Yen (JPY):   The Yen continues to show some strength as exporting companies buy Yen to repatriate their earnings abroad, providing temporary demand.  However, should the market continue to push Yen strength, then we could see the BOJ heat up the jaw-boning rhetoric again.  (Click chart to enlarge)

The lack of news to close out the year has some market participants thinking that it is “game on” to take on risk.  With markets near two-year highs, this may make sense to some.  However, this is not the time to initiate new positions.
End of the year window-dressing plus a convenient story to push commodities higher (foul weather) may be short-lived.
Be on the lookout for my 2011 economic predictions later this week!
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