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Friday, August 13, 2010

Breaking Down the EUR/USD News Trend

Hope you enjoy this guest article submitted by Vincenzo Desroches.

The EUR/USD pairs are the most popular and liquidated currency traded in the forex market. Its popularity has come from what the trader’s perceive as the most stable pair, trend orientated, and least volatile. In the last 6 months, the EUR USD has been the most interesting currency pair to follow due to European Crisis and the worrying of a U.S double dib recession to occur. When looking at the EUR/USD news, you should also adapt the technical analysis features of resistance lines; to give you the best overall picture of the currency market.

When the last wave of European crises began in April 2010 due to the Greek Government large deficit; the Euro was at the 1.3000 level and expectations were that with European bailout plan send the Euro back to its 1.5000 level. The bailout plan was to give the Greek Government over 300 bn (billion) in loans to revive their economy with some rules and regulations attached; that the Greek Government would have to adhere by. The news caused a rippling negative effect on the Union due to the Greek population protesting the Government’s bailout plan which many traders saw it as a moment of sell-sell-sell of the Euro; as you may re-call the May 6th, 2010 “computer glitch” due to numerous sell orders that also caused the Dow Jones to go down a 1000 points. Many of the online forex brokers were also unable to fill-in the orders and put a halt to the operation. The Euro has broken the previous low resistance line of 1.2455 (March 4th, 2009) and headed down to the 1.2100 level. More negative news started to come out on the heavy in-debt countries such as Spain and Portugal; which didn’t help the Euro and caused the Euro to plummet to the low 1.1875.

The most up-to-date news to come today of the Euro Zone is that the Bank of England is cutting the growth outlook and that the British economy may need more stimulus to boost its economic activities. The news caused the bullish momentum build-up from the 1.1875 low to the 1.3332 high to take slight downtrend to the 1.2775 at the moment. The U.S economic news hasn’t produced much positive vibe either, the U.S unemployment rate stayed the same at 9.5% percent and the NFP (Non-Farm payroll) has doubled then what was forecasted to be; the forecast was -63K but the actual number was -131K. The news from both economies is not looking great but the U.S dollar is the go to currency at the moment and is expected to see further bullish run against the Euro.

There are a couple of ways to approach the above news if you are trading in the forex market trading the EUR/USD. Looking at the overall technical analysis of the currency you would be able to pick up the important resistance lines which consist of the 1.3332 (current high), 1.2731 (the resistance line the divides the bulls from the neutral bias), and the 1.2522 (the low resistance line that will cause a bearish run if broken). If the bullish momentum picks-up once again and breaks the 1.3332 resistance line; it would target 1.3690 resistance line (April 12th, 2010) high. The 1.2731 resistance line is the neutral bias resistance line that is currently dividing the current bullish momentum (which is still above the resistance line). If the 1.2731 resistance line is broken it would indicate a change of sentiment in the traders and cause the EUR/USD to enter into a neutral bias. The lowest resistance line of all is the 1.2522 and if it is broken it would indicate a bearish sentiment and would send the currency further down (it may go as low as 1.2150 resistance line – June 29th, 2010 low).

As explained, the news from both the European Union and the U.S economy are not causing a positive sentiment for the traders but due to the fact that many believe that the U.S will be first to come out of the recession; many investors are leaning more toward the dollar.

I wish to thank Vincenzo Desroches for his contribution of this article!!!

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