Continued inaction on the part of the European Central Bank to lower borrowing costs in Spain and Italy weighed down on the euro throughout the day yesterday. The news, combined with positive US data also helped the dollar reverse its bearish trend during afternoon trading. As we close out the week, a lack of significant news out of the US means that risk sentiment will likely be determined by any announcements out of the euro-zone. If the ECB remains reluctant to announce any new initiatives to combat the euro-zone debt crisis, risk aversion may continue and the euro could slide further.
Forex Market Trends
USD – Positive US News Benefits USD
Better than forecasted US news sent the dollar higher against several of its main currency rivals yesterday. Both the weekly Unemployment Claims and Trade Balance figures signaled growth and boosted investor confidence in the US economic recovery. The USD/CHF advanced close to 80 pips over the course of the day to reach as high as 0.9775, before staging a slight correction and dropping to the 0.9760 level. Against the Japanese yen, the dollar rose by more than 40 pips during the second half of the day to trade as high as 78.73.
Turning to today, the safe-haven dollar may be able to extend yesterday’s gains if investor confidence in the euro-zone economic recovery continues to decrease. If the European Central Bank fails to make any announcements regarding new initiatives to lower borrowing costs in the region, the greenback may remain bullish against its higher-yielding currency rivals. That being said, any increase in risk aversion in the marketplace could result in the dollar reversing its losses against the Japanese yen.
EUR – Euro Reverses Earlier Gains
The euro took losses against several of its main currency rivals yesterday, as investor faith in the ECB’s ability to combat the euro-zone debt crisis began to fall. The EUR/USD fell by close to 100 pips during European trading, eventually reaching as low as 1.2284 before staging a mild recovery and stabilizing at the 1.2300 level. Against the Japanese yen, the common currency fell by more than 90 pips to trade as low as 96.31. That being said, the euro was able to bounce back, and by the evening session was trading close to the 96.90 level.
Turning to today, in addition to any announcements made by euro-zone officials regarding the region’s debt crisis, euro traders will also want to pay attention to the British PPI Input figure, set to be released at 8:30 GMT. The indicator is forecasted to come in at 1.3%, significantly higher than last month’s -2.2%. If true, risk taking may return to the marketplace, and the euro could receive a mild boost during mid-day trading against its safe-haven currency rivals.
Gold – Gold Takes Mild Losses
The price of gold fell during the first part of the day yesterday, as a lack of confidence in the euro-zone economic recovery weighed down on higher-yielding assets. The precious metal fell by close to $8 an ounce to reach as low as $1609.39. That being said, better than expected US news later in the day helped gold bounce back to the $1615 level.
Today, gold traders will want to pay attention to any announcements out of the euro-zone and how they continue to impact risk taking in the marketplace. If investor confidence in the ECB’s ability to lower Spanish and Italian borrowing costs continues to drop, the price of gold may turn bearish before markets close for the weekend.
Crude Oil – Crude Oil Benefits from US News
The price of crude oil traded steadily for most of the day, as supply side fears due to tensions in the Middle East helped the commodity hold onto its recent gains. Furthermore, crude saw mild gains during afternoon trading, after better than expected US news signaled to investors that demand in the world’s leading oil consuming country may go up. Oil reached as high as $94.02, up close to $1 a barrel for the day.
Today, oil traders will want to continue monitoring developments in the Middle East, particularly with regards to tensions between Iran and the West. Any escalation in the ongoing conflict over Iran’s disputed nuclear program could result in oil prices going higher before markets close for the week.
A bearish cross on the daily chart’s Slow Stochastic indicates that this pair could see downward movement in the near future. Furthermore, the Williams Percent Range on the same chart is in overbought territory. Traders may want to open short positions.
Most long-term technical indicators show this pair range-trading, 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 Bollinger Bands on the daily chart are narrowing, indicating that this pair could see a price shift in the near future. Furthermore, the Williams Percent Range on the weekly chart has dropped into oversold territory, signaling that the price shift could be upward. Going long may be the smart choice for this pair.
The daily chart’s Slow Stochastic has formed a bullish cross, meaning that an upward correction could form in the near future. In addition, the Williams Percent Range on the same chart is currently close to being in oversold territory. Going long may be the wise choice for this pair.
The Wild Card
The daily chart’s Slow Stochastic has formed a bearish cross, signaling that a downward correction could occur in the near future. Additionally, the Relative Strength Index on the same chart has crossed into overbought territory. This may be a good time for forex traders to open short positions ahead of possible bearish movement.
Written by Forexyard.com