Italian Bond Auction Leads to EUR Losses

The euro tumbled to a three-week low against both the US dollar and Japanese yen yesterday, following an Italian bond auction and general pessimism regarding an EU summit. While crude oil saw gains early in the day, the commodity turned bearish during mid-day trading as investors shifted their funds away from riskier assets. Turning to today, traders will want to continue monitoring any developments out of the EU summit. Should euro-zone leaders finish out the week without agreeing to any new strategies to combat the debt crisis, the euro could see additional losses.

Forex Market Trends

Daily Trend up down up down up up
Weekly Trend up up down down up no
Resistance 1.2673 1.5723 80.32 0.9651 1.0266 0.8139
1.2626 1.5671 79.91 0.9604 1.0216 0.8102
1.2594 1.5639 79.65 0.9576 1.0187 0.8079
Support 1.2547 1.5584 79.25 0.9530 1.0137 0.8043
1.2518 1.5552 79.00 0.9500 1.0109 0.8020
1.2469 1.5500 78.59 0.9455 1.0059 0.7984

Economic News

USD – Risk Aversion Leads to Broad Dollar Gains

The dollar was able to benefit from risk aversion in the marketplace to make gains across the board yesterday. Investor concerns about the euro-zone debt crisis were largely responsible for the gains made by safe-haven assets. The GBP/USD fell over 100 pips during the European session, eventually reaching as low as 1.5506 before staging a very mild upward correction. Against the aussie, the dollar advanced around 95 pips over the course of the day. The AUD/USD eventually fell to the 1.0025 level before staging a slight recovery and stabilizing at 1.0040.

As we close out the week, analysts are predicting that the greenback could extend its bullish trend as long as EU leaders fail to come to a consensus regarding the best way to combat the euro-zone debt crisis. That being said, should European leaders successfully come up with new ways to stimulate economic growth during today’s EU summit, investors could shift their funds back to riskier assets, which may lead to losses for the USD.

EUR – EUR Drops to 3-Week Low vs. USD, JPY

Differences of opinion between European leaders on the best way to combat the euro-zone debt crisis led to broad losses for the euro throughout the day yesterday. The common currency fell to a three-week low against the USD, eventually reaching 1.2406 before bouncing back to the 1.2430 level. The EUR/JPY also dropped to its lowest level in three-weeks, reaching as low as 98.31 during early morning trading. The pair eventually staged a slight upward correction to stabilize at the 98.60 level.

Turning to today, traders will want to continue monitoring any developments out of the EU summit. While analysts remain doubtful that euro-zone leaders will be able to reach any kind of agreement regarding how to stimulate economic growth in the region, traders should note that if any breakthroughs do occur, the euro could see upward movement to close out the week. That being said, with borrowing costs steadily rising in both Italy and Spain, any euro gains may turn out to be temporary.

JPY – Safe-Haven Yen Extends Gains

The yen was able to benefit from economic turmoil in the euro-zone yesterday, as investor fears regarding rising borrowing costs in Spain and Italy resulted in risk aversion in the marketplace. The CHF/JPY fell close to 80 pips over the course of the day, eventually reaching as low as 81.84 before staging a slight upward correction. The AUD/JPY dropped over 90 pips to reach as low as 79.40 by the end of European trading.

As markets get ready to close for the week, analysts are forecasting that recent lack of positive developments in the euro-zone may lead to further gains for the safe-haven yen today. That being said, should EU leaders successfully reach an agreement today on how to help boost debt stricken economies in the euro-zone today, the JPY could reverse some of its gains.

Crude Oil – Crude Oil Takes Heavy Losses

The price of crude oil tumbled during afternoon trading yesterday, as fears regarding the euro-zone debt crisis caused investors to abandon their positions in higher yielding assets. After peaking at $80.81 a barrel during the afternoon session, crude fell as low as $78.20 by the end of the European session.

Turning to today, oil traders will want to continue monitoring any developments out of the EU. In addition to the EU summit, which is widely expected to not produce any meaningful solutions to the region’s debt crisis, negative announcements out of Italy and Spain have the potential to bring the price of oil down further before markets close for the week.

Technical News

A bearish cross on the daily chart’s MACD/OsMA indicates that this pair could see an upward correction in the near future. This theory is supported by the Williams Percent Range on the same chart, which has dropped into oversold territory. Going long may be a wise choice for this pair.
Most long-term technical indicators show this pair range-trading, meaning that no defined trend can be predicted at this time. That being said, the Williams Percent Range on the weekly chart is slowly drifting into oversold territory. Traders will want to keep an eye on this indicator, as it may signal an impending upward correction.
Long-term technical indicators show this pair trading in neutral territory, meaning that no defined trend can be determined at this time. Traders may want to take a wait and see approach, as a clearer picture is likely to present itself in the near future.
The weekly chart’s Williams Percent Range has drifted into overbought territory, indicating that a downward correction could occur in the coming days. This theory is supported by the Relative Strength Index on the same chart, which is currently approaching the 70 level. Going short may be a wise choice.

The Wild Card

The Bollinger Bands on the daily chart are narrowing, indicating that a price shift could occur in the near future. Additionally, the MACD/OsMA on the same chart is currently forming a bearish cross, signaling that the price shift could be downward. This may be a good time for forex traders to open short positions.

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