The euro staged a broad recovery during yesterday’s trading session, as the combination of a positive German ZEW Economic Sentiment and smooth Spanish debt auction generated risk taking in the marketplace. Turning to today, traders will want to pay attention to the British Claimant Count Change, scheduled for 08:30 GMT. The report is the official unemployment statistic for the UK and has been known to generate market volatility. Should the figure come in higher than forecasted, risk aversion may return to the market place.
Forex Market Trends
USD – Dollar Turns Bearish vs. Riskier Currencies
A batch of positive international news releases yesterday led to US dollar losses as investors shifted their funds to riskier assets. A better than expected German ZEW Economic Sentiment and Spanish debt auction led to gains for currencies like the EUR and AUD against the greenback. Meanwhile, a positive US Building Permits figure helped the dollar recoup some of its recent losses against the Japanese yen. The USD/JPY gained close to 40 pips during the European session to trade as high as 80.76.
Turning to today, a lack of news out of the US means that any fluctuations the dollar sees are likely to be due to international indicators. While news out of the euro-zone was largely positive yesterday, analysts were quick to say that the real test for Spanish debt is likely to be Thursday’s long-term bond auction, which is not expected to proceed as smoothly. Should worries about the euro-zone debt crisis resurface today, investors may revert to safe-haven assets, which could lead to dollar gains.
EUR – Risk Taking Leads to Euro Gains
Euro-zone fundamental indicators helped the common-currency stage an upward correction throughout yesterday’s trading session. The German ZEW Economic Sentiment unexpectedly came in at 23.4, well above the forecasted level of 19.7 and signaled that the euro-zone’s biggest economy continues to grow. In addition, a smooth Spanish bond auction helped ease fears regarding Spain’s ongoing debt problems. The EUR/USD moved up some 85 pips during European trading before staging a slight downward correction. The pair eventually stabilized around the 1.3125 level.
Despite the positive news released yesterday, traders will want to note that the euro-zone is still in a very fragile position and the euro’s gains may not last. The real test of how bad Spain’s debt situation is will take place tomorrow when long-term bonds are auctioned off. Analysts are warning that the long-term bond sale is likely to be significantly more difficult than yesterday’s, and could result in steep euro losses. Today, traders will want to pay attention to any announcements out of the euro-zone, particularly with regards to Spain. Negative data could result in increased risk aversion, which could weigh down on the euro.
AUD – Aussie Sees Upward Movement
The Australian dollar saw healthy gains vs. both the Japanese yen and US dollar during trading yesterday following the release of positive euro-zone and US news. The increase in risk taking caused the AUD/JPY to spike close to 100 pips during the European session. By the evening session, the pair was trading at 83.85. Meanwhile, the AUD/USD was up over 90 pips for the day, and peaked at 1.0394.
Turning to today, AUD traders will want to pay attention to any announcements out of the euro-zone which could influence risk appetite. Additionally, the British Claimant Count Change could generate some market volatility when it is released at 8:30 GMT. The figure is forecasted to come in at 6.6K, which if true, would signal a drop in unemployment claims from last month and could lead to gains for riskier assets like the AUD. That being said, a higher than predicted result may cause the AUD to give up some of its recent gains.
Crude Oil – Crude Oil Hits 3-Day High
The price of crude oil spiked throughout yesterday’s trading session, following the release of positive euro-zone data which led to an increase in risk taking. Oil also benefitted from a better than expected US Building Permits figure, which investors took as a sign of increased demand in the world’s largest energy consuming country. The commodity peaked at $105.47 a barrel during European trading, up well over $2 for the day.
Today, oil traders will want to continue monitoring any developments out of the euro-zone which could impact risk appetite among investors. Furthermore, the US Crude Oil Inventories figure is scheduled to be released at 14:30 GMT. Analysts are forecasting the figure to come in at 1.6M, which if true, could be taken as a sign of higher demand in the US. In such a case, oil may be able to extend its bullish run.
The daily chart’s Williams Percent Range has entered the oversold zone, indicating that an upward correction may occur in the near future. That being said, most other technical indicators show this pair range trading. Taking a wait and see approach may be the wise choice until a clearer picture presents itself.
Technical indicators on the weekly chart show this pair range-trading, meaning that no defined long term trend can be determined at this time. The Williams Percent Range on the daily chart points to possible bullish movement in the near future. Traders may want to go long in their positions for time being, but beware of any sudden downward corrections.
A bearish cross appears to be forming on the weekly chart’s MACD/OsMA, meaning that downward movement could occur in the coming days. Opening short positions may be a wise long term strategy, but traders will want to watch out for any minor upward corrections.
A narrowing of the Bollinger Bands on the weekly chart indicates that this pair could see a price shift in the coming days. Traders will also want to note that a bearish cross appears to be forming on the same chart’s MACD/OsMA. Should the cross form, it may be a sign of an impending downward correction.
The Wild Card
The daily chart’s Williams Percent Range has dropped into the oversold zone, indicating that upward movement could occur in the near future. Additionally, the same chart’s Slow Stochastic appears to be forming a bullish cross. Forex Forex traders will want to pay attention to this indicator. If a cross forms, this pair could see a bullish correction.
Written by Forexyard.com