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Markets Today – Euro Vs. U.S. Dollar

November 9, 2012 in Forex Analysis

The reports of unexpected fall in the U.S. trade deficit by a record jump in the exports added to the post election strengthening of U.S. Dollar against the Euro. The momentum of the fall continued and EUR/USD slipped down to the low of 1.2717.

United States Exports

The Exports of Goods and Services rose to record high in September to U.S. Dollar 187.0 Billion.

Let’s have a look at the historical data of U.S. Imports and Exports from 1960.

Historical Annual Trade of US - Exports and Imports

 Europe and Euro

As mentioned the previous Markets Today post, European commission has cut down the growth forecast for Euro zone to 0.1% from previous 1.0% for 2013. That makes the overall outlook for Euro further bearish.

While the bail out of Greece against the debt crisis still carries the uncertainties. Even though the austerity measure bill for cuts in the spending towards pension, wages and benefit were approved by 153 against 128 votes yesterday, the final decision on the bail will depend on the complete report of compliance to the bail out terms.

The unemployment in Greece went up record high and moved over 25% to 25.4%. The July figure was 24.8%. With further spending cuts the outlook remains gloomy. The bailout against the debt crisis is one thing but the side effects of further austerity measures of spending cuts will not help the unemployment issues and money flow at least in the near term.

Euro Vs. U.S. Dollar – The Price Action:

Let’s see some of the charts of EUR/USD to see how the currency pair has been moving:

EUR/USD Chart 1

Euro versus U.S. Dollar-1

The above weekly chart since May 2010 shows that during the first week of September the pair had broken the resistance of the price channel and had moved up strongly. The chart also shows that during a trend the support and resistances coming near the 5-week EMA. The upward move could not sustain and last to last week the 5-week EMA support was broken strongly.

 EUR/USD Chart 2:

Euro vs. U.S. Dollar -2

The above weekly chart of EUR/USD shows another interesting point. The currency pair had been in a downtrend for over 1 year. The trend which had started in the beginning of May 2011 and continued towards the end of July 2012 had found the support just over the strong psychological level of 1.2000. EUR/USD had a consolidation from the low of 1.2042.

Now why we still call it as consolidation is because of the resistance found almost exactly at the 38.2% retracement of the above mentioned downtrend. 38.2% retracement after such a great fall is a very common phenomenon. The above weekly chart shows the classical example of 38.2% reversal and the resistance and fall from there.

EUR/USD – What to Expect:

As mentioned in the previous outlook, the 200-day SMA support is near   1.2680. We would expect at least some more deeper moves towards that support level. In case a break of that support takes place then some deeper decline towards 1.2610 or more may take place.

Euro – U.S. Dollar Chart 3

Euro versus U.S. Dollar-Chart 3

Any decisive break over 1.2885 will neutralize the above outlook for the near term, though a better confirmation would come with a decisive break of 1.3000 psychological level and then a break over the recent high of 1.3168.

ECB’s bond buying, cure or just buying time for the debt crisis?

September 6, 2012 in Forex Fundamentals and News

By announcing that ECB will buy unlimited government bonds to help Euro, ECB President Draghi did what he had to or for that matter any person in his shoes and his position. Debates are taking place and more debates would take place but the fact remains same that something had to be done and that something had to boil down to this as the immediate step.

The solution to Financial crisis like this can not come in days or months or even in few years but the breathing time for those whatever number of years required is also needed. The debate should not be about this step taken but about the way ahead and what should be done during that breathing time to avoid a fall on the face.

The yield on the bonds which were going high because of the reducing values of the bonds have suddenly seen a check and the yields on government bonds started falling across Europe. With the support the borrowing costs will go down for the countries in crisis with some renewed confidence about the safety of the money. All these will help.

On the other hand with the influx of money, the raise in inflation in those countries can not be ignored in the coming times. Money comes in, the value of money goes down, prices increase, earnings of the normal people do not increase, the purchasing power of individuals go down, the demand of the goods and services go down because of high prices, production goes down, unemployment increases, the growth of the economies slow down,,,, Well, it’s always that economical cycle which can not be ignored.

It can not be ignored but can be kept in check by better economic reforms. The million Dollar question (in fact many Billion Dollar question in this case) is whether the economies in question i.e. Greece, Ireland and Portugal and then Spain and Italy would be able to tread through the troubled time with enough economic reforms to come out this crisis healthier? The question is whether the breathing time given would not add to further strain on Euro in longer term by the additional risk factors of the unlimited bond buying.

Well, all the above are anybody’s guess at this point of time but one thing is sure that a common currency like Euro can not fall so easily because if it falls, it will not be alone and will take most of those which matter along.

EUR/USD Outlook: Euro, Draghi and the storm in making

September 6, 2012 in Forex Analysis

The sentiments have been bearish and short-selling has continuously been at the top of the mind. But then, time and again, the bear seems to be growing horns. Horns to attack or simply like the tusks of an elephant to defend?

Technically speaking the wide gap between the high and the closing of green candles and also the lows and the closing of the red candles are failing to hide the complete uncertainties even though the upward inching up seems to be going on.

EUR/USD outlook  Daily chart

EUR/USD outlook – Daily chart

Rock climbing by armatures or the rocks are rough is anybody’s guess but guess, I will not call it to be.

Draghi of European Central Bank had made (or has been making) some strong optimistic comments and claims. But then those are also needed. Who can take the fall of Euro with the cool of mind even if our short positions can make some profits. Euro going down will be much bigger than Lehman going down or housing crisis or … do we need to spell it out?

But then there is no term as trading world. It is just trading room or trading floor. We just think within narrow boundaries while trading as retail traders and there is nothing wrong in that. But the eyes need to be on the horizon also.

Draghi’s comments can fuel the market when the gas is in reserve but it is not one person’s thinking or doing which can turn tables. There are individual country’s own priorities and even inside any of those countries the political push and pulls. Objectivity is always a relative term in the broad sense.
Euro will of course survive (disclaimer: my individual belief – do you disagree?) but the near-term outlook is bearish even if some big and high spikes come in.

Today? Well, 12:30 GMT, shortly (45 minutes to be exact) is the press conference to be held by Mario Draghi and then at at 16:30 is ECB president Draghi’s speech. Market (EUR/USD) will be in uncertain moves during this time and personally and individually speaking I expect another upward jump towards 1.2680/1.2750 but then when we jump up, we have to come down. So jump it is, flying up seems to be little difficult for Euro right now and I am not a rocket scientist and I think we need not to be that to make a calculated guess or near term analysis.

Greece – credit rating outlook

August 8, 2012 in Forex Analysis

Greece – Credit Rating

Standard & Poor’s may cut Greece’s credit rating further. The current credit rating of Greece is CCC and that is 8 levels below the investment grade.

The GDP of the troubled nation has been going down for past 5 years. The unemployment rate has sky rocketed to 22.5%.

The credit rating cut would depend again on the disbursement of the rescue package by IMF and European union.

The Euro has gained against US Dollar recently but is running sideways below 1.2500. Overall situation is not in favor of Euro and the recent upward move can best be termed as a normal consolidation.