A worse than expected US Non-Farm Payrolls figure on Friday led to risk aversion in the marketplace and sent the euro to a two-year low against the US dollar. Commodities and precious metals also saw bearish movement on Friday. The price crude oil fell by close to $3 a barrel, while gold tumbled over $20 an ounce. This week, traders will want to pay attention to several potentially significant news events, including a speech from ECB President Draghi today, the US Trade Balance figure on Wednesday and the US PPI on Friday. Should any of the news indicate a further slow-down in the global economic recovery, risk aversion may continue throughout the week.
Forex Market Trends
USD – Risk Aversion Leads to Significant Dollar Gains
A disappointing US employment figure resulted in investors shifting their funds to safe-haven assets on Friday, giving the US dollar a significant boost against several of its main currency rivals. Against the Swiss franc, the dollar advanced over 90 pips to reach 0.9792, a 1 ½ year high, before staging a slight downward correction to finish out the week at 0.9770. The USD/CAD also saw upward movement after the US news was released, gaining close to 70 pips to trade as high as 1.0206. The pair eventually corrected itself to close out the week at 1.0191.
This week, several potentially significant US indicators are set to be released. Traders will want to pay close attention to Wednesday’s Trade Balance figure and Friday’s Producer Price Index (PPI). While both indicators are forecasted to show slight improvements over last month, neither is expected to indicate substantial growth in the US economy. Investors may continue placing their funds with safe-haven assets, including the US dollar, if any news comes in below forecasts this week.
EUR – Euro Tumbles Following US NFP Report
The euro fell to a two-year low against the US dollar on Friday, after a disappointing US Non-Farm Payrolls report led to significant risk aversion in the marketplace. The EUR/USD dropped over 120 pips after the news was released, eventually hitting 1.2258 before staging a slight upward correction to close out the week at 1.2288. Against the Japanese yen, the euro fell 130 pips to trade at the 97.61 level. The pair finished out the week at 97.91.
This week, euro traders will want to continue monitoring any developments with regards to the euro-zone debt crisis and whether it is spreading to other countries in the region. Today, a speech from ECB President Draghi could lead to market volatility, especially if he voices any pessimism regarding the economic recovery in the euro-zone. On Wednesday, a German 10-year bond auction could indicate whether the debt-crisis has spread to the region’s biggest economy. Should demand for German bonds be low, the euro could extend its bearish trend.
Gold – Strengthening Dollar Leads to Losses for Gold
The price of gold fell by over $20 an ounce on Friday, as a strong US dollar made the precious metal more expensive for international buyers. Analysts attributed the bearish movement to worse than expected global data, which resulted in investors shifting their funds to safe-haven assets. Gold fell as low as $1576.03 during the afternoon session before closing out the week at $1583.57.
This week, gold may extend its bearish trend, especially if the euro continues to fall against the US dollar. Traders will want to pay attention to any developments out of the euro-zone. Any indications that the debt-crisis in the region is worsening could result in further risk-aversion in the marketplace, which may lead to additional losses for gold.
Crude Oil – Oil Drops by $3 amid Increase in Risk Aversion
The price of oil fell close to $3 a barrel on Friday, as an increase in risk aversion due to disappointing global news erased gains from earlier in the week. The price of oil typically goes down amid poor global data, as it is generally taken as a sign that demand will go down as well. Crude finished out the week at $84.06.
This week, oil may extend its losses further if investors determine that the global economic recovery is losing momentum. That being said, any escalation in the ongoing dispute between Iran and the West could lead to supply side fears, which may help oil reverse its current downward trend.
The Williams Percent Range on the weekly chart has fallen into oversold territory, signaling that an upward correction could take place in the coming days. Additionally, the Slow Stochastic on the daily chart appears to be forming a bullish cross. Traders may want to open long positions ahead of possible upward movement.
While the Williams Percent Range on both the daily and weekly chart is currently in oversold territory, most other technical indicators show this pair trading in neutral territory. Traders may want to take a wait and see approach for this pair, as a clearer picture is likely to present itself in the near future.
Most long term technical indicators are currently showing this pair range-trading, meaning that no defined trend can be predicted at this time. Taking a wait and see approach may be a wise choice, as a clearer picture is likely to present itself in the coming days.
The Relative Strength Index on the weekly chart is hovering close to the overbought zone, indicating that downward movement could occur in the near future. This theory is supported by the daily chart’s Slow Stochastic, which has formed a bearish cross. Going short may be the wise choice for this pair.
The Wild Card
The Slow Stochastic on the daily chart has formed a bullish cross, signaling that upward movement could occur in the near future. Furthermore, both the Williams Percent Range and the Relative Strength Index on the same chart have dropped into oversold territory. Forex traders may want to open long positions ahead of a possible upward correction.
Written by Forexyard.com