A quiet start to the forex trading week with the US markets closed today in observance of Martin Luther King day, and therefore we can expect thin market trading conditions with low volumes, and volatile moves as a result.

With very little real news to excite the forex markets, Europe will be focusing on the EU finance ministers meeting which gets underway in Brussels this morning, and continues tomorrow, with sovereign debt issues high on the agenda. Whilst the euro bond option remains the only credible alternative to stem the flow of casualties in Europe, opposition from Germany may halt any further progress with this solution, and if so this will increase the likelihood of further problems with bond auctions in Spain and Portugal as a result. Any failure to present a coherent plan on Tuesday is likely to weaken the euro against the US dollar and other currency pairs including the UK pound. The only other fundamental news item today is a speech by FOMC member Plosser, who is delivering a talk entitled “Thoughts on the scope of Monetary Policy” at the Global Interdependence Conference Centre in Santiago, with a question and answer session to follow. Should the speech be more hawkish than expected then this could provide some support for the US currency today in thin trading conditions.

Overnight, the euro sold off against the US dollar as concerns over China’s monetary policy continued along with the news that the People’s Bank of China had raised the RRR rate ( Reserve requirement ratio ) by 0.5% with effect from the 20th January, causing markets to stumble, which in turn is rippling through European markets in early trading. The shooting star candle on Friday’s daily chart for the euro vs dollar has also signalled a potential reversal today, and with┬áthe pair currently trading at 1.3259, down from Friday’s close at 1.3387, then if this is confirmed at the close tonight, this would signal further weakness and validate Friday’s bearish signal.

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