Sunday, April 6, 2014

Long term prospects for the Euro | Government report revisions are often ignored – this is a mistake

As can be seen above, the long term pattern of EURUSD price movement would seem to support the idea that the current upward trend in the pair might be about to reverse. Price has now hit the descending long-term upper trend line, which is most apparent on the monthly chart. It has been anchored to the downside by the monthly 200 period Simple Moving Average (SMA). All of this has defined the Single Currency since the onset of the Global Financial Crisis, which made itself felt on the Foreign Exchange market in late 2008.

On the fundamental analysis side, there are also signals that would support the idea that the pair could reverse from here: Fed tapering of Quantitative Easing (QE) is happening and will continue. With exquisite irony, as was pointed out last week, this type of economic stimulus, which has the effect of weakening the relevant currency, is now being actively considered for the Euro zone (QE has entered the lexicon of the European Central Bank).

Government report revisions are important but often ignored

While the Federal Open Market Committee (FOMC) has signaled that it will no longer rely on employment data to the exclusion of all others, the job numbers still have to carry a lot of weight in their deliberations of when they will start to raise interest rates. It now turns out that, after revisions, what were perceived to be soft employment figures, and attributed to severe weather conditions in the US, were nothing of the sort. Employment growth has been proceeding apace throughout the first quarter of 2014. However, it would seem that the revisions never get anything like the kind of attention the initial report receives when it is announced.

The sale of treasuries is also under way (meaning a rise in short term yields), which is another harbinger of a stronger US dollar. And last Friday, what might be the first signs of a retreat from equities by the smart money could have been seen, with a late-day drop in US stocks, particularly those in the tech sector. If this continues it will mean that equity traders as well have woken up to the reality of the end of the cheap money era in the USA.

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