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.
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
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:
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
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.