Risk Aversion Returns to the Marketplace

The euro saw significant gains when markets opened for the week, as news that a $125 billion bailout for Spanish banks was being put together generated risk taking in the marketplace. That being said, the upward movement proved to be short lived, and the common-currency gave back most of its gains against the US dollar and Japanese yen by mid-day trading. Today, it appears that announcements out of the euro-zone will once again be the main factor in determining what direction the markets take. Traders will want to pay attention to any news out of Italy, which is now being viewed as the next country that is vulnerable to the euro-zone debt crisis. Any negative news could drive the EUR lower.

Forex Market Trends

Daily Trend down no down up down no
Weekly Trend down up no up down down
Resistance 1.2631 1.5610 80.40 0.9727 0.9976 0.8156
1.2573 1.5559 80.02 0.9676 0.9924 0.8115
1.2536 1.5528 79.78 0.9644 0.9891 0.8089
Support 1.2478 1.5476 79.40 0.9595 0.9839 0.8048
1.2441 1.5445 79.16 0.9563 0.9806 0.8022
1.2383 1.5395 78.78 0.9512 0.9754 0.7981

Economic News

USD – Dollar Benefits from Fresh Euro-Zone Fears

After tumbling against several of its main currency rivals during Asian trading yesterday, the dollar was able to recoup most of its losses as fresh euro-zone debt fears caused investors to revert their funds back to safe-haven assets. The EUR/USD, which shot up over 100 pips when markets opened for the week, reached as high as 1.2667 before staging a downward reversal. The pair eventually fell as low as 1.2527 during mid-day trading. Against the Swiss franc, the dollar dropped as low as 0.9478 during the overnight session before staging a correction and moving up to the 0.9580 level.

Turning to today, a lack of significant US economic indicators means that any dollar movement is likely to result from news out of the euro-zone. Fears that Italy will be the next euro-zone country to be impacted by the region’s debt crisis may cause investors to continue shifting their funds to safe-haven currencies, which could help the dollar extend its bullish run. In addition, worries that the Spanish bailout will not be enough to help that country’s banking sector recover could also result in gains for the greenback.

EUR – Euro Reverses Gains against JPY

Optimism in the future prospects for the Spanish banking sector following the announcement of a $125 billion bailout package over the weekend, led to significant gains for the euro when markets opened for the week. That being said, the common-currency eventually fell as worries regarding the possible outcome of Greece’s election next week and the health of Italy’s economy led to risk aversion in the marketplace. The EUR/JPY fell over 130 pips during European trading, giving back all of its gains from the previous night. The pair reached as low as 99.41 before staging a slight upward correction and stabilizing at 99.80.

Turning to today, euro traders will want to monitor the latest announcements out of Greece and Spain. With Greece getting ready to hold elections on Sunday, it appears that any small piece of news out of the country has the potential to create euro volatility. Any signs that anti-austerity political parties could win next week may result in euro losses. Furthermore, any indication that the Spanish bailout is not enough to help its banking sector recover could cause the euro to drop once again against its safe-haven rivals.

AUD – Aussie Takes Slight Losses in European Trading

Better than expected Chinese economic indicators helped the Australian dollar rally against several of its main currency rivals during overnight trading yesterday. As Australia’s biggest trading partner, data out of China tends to have a significant impact on the aussie. The AUD/USD moved up close to 100 pips during Asian trading, reaching as high as 1.0007. That being said, the aussie was not able to maintain its bullish momentum, and proceeded to fall some 60 pips over the course of the day.

Today, any movement by the AUD is likely to be closely linked to risk sentiment among investors. Any positive news out of the euro-zone, particularly with regards to the upcoming Greek elections, could cause investors to shift their funds to higher-yielding assets, which would result in gains for the aussie.

Crude Oil – Oil Takes Significant Losses amid Euro-Zone Worries

Crude oil reversed its recent bullish streak during trading yesterday, as euro-zone worries once again caused investors to become worried that global demand for the commodity would drop. The price of crude fell more than $3 a barrel over the course of the day, eventually reaching as low as $83.41 during afternoon trading.

Turning to today, any negative news out of the euro-zone may drive the price of crude-oil lower if investors determine that the global economic recovery is slowing down as a result. That being said, if news out of Greece indicates that pro-austerity political parties could win next week’s elections, investors may revert their funds to riskier assets, which may help oil recover some of its recent losses.

Technical News

Technical indicators on the weekly chart show that this pair is currently range trading, meaning that no defined long-term trend can be predicted at this time. That being said, the daily chart’s Williams Percent Range has crossed over into overbought territory. Traders may want to open short positions, as downward movement could be seen in the near future.
A bullish cross has formed on the weekly chart’s Slow Stochastic, indicating that this pair could see upward movement in the coming days. In addition, the Bollinger Bands on the daily chart are beginning to narrow, meaning that a price shift could occur in the near future. Opening long positions may be the wise choice.
While a bullish cross appears to be forming on the weekly chart’s Slow Stochastic, most other long-term indicators show that this pair is in neutral territory. Traders may want to take a wait and see approach, as a clearer trend is likely to present itself in the near future.
Technical indicators are providing mixed signals for this pair. While the Williams Percent Range on the daily chart is in oversold territory, the weekly chart’s Slow Stochastic has formed a bearish cross. Traders will want to use a wait and see strategy for this pair.

The Wild Card

A bearish cross on the daily chart’s Slow Stochastic indicates that this pair could see downward movement in the near future. This theory is supported by the Williams Percent Range on the same chart, which has moved into overbought territory. Forex traders may want to go short in their positions ahead of a possible downward breach.

Written by Forexyard.com