Tuesday, May 8, 2012
The EUR/USD has been under heavy pressure as political turmoil breaks out all over the Eurozone. The elections over the weekend, in both Greece & France, have stoked fears about the Eurozone's ability to solve its sovereign debt problems. Socialist Party Leader Francis Hollande won the French presidential election and the major theme of his campaign was to take away cuts in spending, minimize austerity, and renegotiate the terms of the fiscal compact agreement. After his May 15th swearing into office, President-Elect Hollande will have to spell out more clearly how he plans to cut the deficit and stimulate growth without austerity. German Chancellor Merkel said the Euro Fiscal Compact is not negotiable and she gave this stark warning to France despite her constant insistence that she plans to work well with the newly elected president.
Greece, on the other hand, is experiencing political gridlock as no party wins an outright election majority and there are fears over whether they will be able to form a coalition government by the May 17th deadline. The Greek Leftist Leader Tsipras stated that the Greek bailout pledges are now "null & void". He wants an immediate renegotiation of the bailout package and he refuses to work with the 2 pro-bailout parites Pasok & New Democracy Parties, unless they also reject the terms of the Greek reform for bailout. If Greece does not go along with the recommended austerity measures provided by the Troika, then this may signal an eventual departure of Greece from the Eurozone. This threat of a disorderly Greek exit has caused many investors to fear the possibility of Euro-wide contagion, which will shift market sentiment towards the safe haven play. Today, the EUR/USD pair broke below the 1.3000 psychological handle.
Thursday, May 3, 2012
For the past two days, the euro had fallen sharply against the dollar and other major currencies after a series of poor data prints from the Eurozone and the United States began to elevate concerns about global growth prospects. Eurozone Manufacturing PMI fell to 45.9 vs. the 46.0 consensus, and regional readings in the peripheral nations were more concerning, with some of the components showing sharp drops in data. But, the real push towards risk aversion came after the release of the U.S. ADP employment report for April, which showed only a 119,000 increase in private sector jobs, compared to expectations for a 175,000 rise in jobs. Since the ADP report is widely considered a precursor to Friday's Non-Farm payrolls report, this poor reading leaves analysts unsure about what to expect on Friday.
Earlier today, the ECB decided to leave its key policy rate unchanged at 1.00% with no plans to adjust monetary policy or apply standardnon-standard measures. During the ECB press conference, we began to see the EUR/USD pair rally after breaking below the 1.3100 handle. Draghi's statements sounded a bit more hawkish which was unexpected considering the poor PMI & unemployment numbers.
The US Services sector also disappoints as ISM Non-Manufacturing PMI falls to a 6-month low for the month of April to 53.5, which was below the forecasted 55.5 and lower than the previous month's number of 56.0. Although a reading above 50.0 indicates the Services Sector is generally expanding, it is not growing at a pace consistent with analysts forecasts. This caused the EUR/USD to climb higher on USD weakness and equities began to slide on fears that the US economic recovery may be running out of steam.
In today's V.I.P. webinar, we briefly discuss the current price behavior in the EUR/USD pair and we also place a few live trades using the Slumdog Forex trading system.