A worse than expected US Core CPI figure yesterday caused the US dollar to reverse its gains from earlier in the week against the Japanese yen. The greenback had more luck against the euro, as an increase in risk aversion sent the EUR/USD down more than 70 pips. Today, indicators out of both the euro-zone and US are forecasted to generate market volatility. Traders will want to note the results the euro-zone CPI and Core CPI figures at 9:00 GMT, the US Building Permits report at 12:30 and the Philly Fed Manufacturing Index at 14:00. Should any of the indicators come in below expectations, risk aversion could lead to further losses for the USD and EUR against the JPY.
Forex Market Trends
USD – US News Forecasted to Generate Dollar Volatility
After hitting a fresh one-month high against the Japanese yen during mid-day trading yesterday, the greenback tumbled close to 50 pips following the release of a disappointing US Core CPI figure. The USD/JPY fell as low as 78.58 before reversing slightly to stabilize at the 78.70 level. The dollar was able to fare significantly better against the Swiss franc. The USD/CHF shot up 55 pips during the morning session to trade as high as 0.9788. A modest downward correction following the worse than expected US news brought the pair down to 0.9775.
Today, dollar traders can anticipate another volatile day as a batch of potentially significant US news will be released. At 12:30 GMT, the Building Permits and Unemployment Claims figures could help the greenback recover some of its losses against the yen if they signal improvements in the US economy. While the same can be said for the Philly Fed Manufacturing Index, set to be released at 14:00, analysts are predicting the indicator to come in at -4.3, which would signal worsening conditions in the manufacturing sector. Any worse than expected data could lead to additional dollar losses.
EUR – Risk Aversion Turns EUR Bearish
The euro took losses against several of its main currency rivals yesterday, as risk aversion sent investors away from higher yielding assets. In addition, a low liquidity environment due to bank holidays in much of the euro-zone led to exaggerated price shifts in the marketplace. The EUR/GBP tumbled 55 pips during the European session before finding support at the 0.7825 level. Against the dollar, the euro fell as low as 1.2263, down close to 75 pips.
Turning to today, euro traders will want to pay attention to the results of the EU CPI and Core CPI figures, set to be released at 9:00 GMT. If either indicator comes in above its forecasted level, the common-currency could reverse some of its losses from yesterday. Additionally, potentially significant US news being released this afternoon could lead to risk taking among investors if it comes in above expectations, which could help the euro during evening trading.
Gold – Gold Rallies amid Bearish Dollar
After falling more than $13 an ounce to trade as low as $1589.70 during morning trading, gold was able to rally during the afternoon session after disappointing US news turned the dollar bearish. As a result, gold became cheaper for international buyers, which in turn sent prices as high as $1606.22.
Today, gold will have several more opportunities to extend its upward trend following the release of a batch of US news during mid-day and afternoon trading. If any of the news comes in below its forecasted level, investor expectations that the Fed will need to initiate a new round of quantitative easing could send the dollar lower, which may give gold an additional boost.
Crude Oil – Oil Turns Bullish Following US Inventories Report
The price of crude oil turned bullish during afternoon trading yesterday, after a US inventories figure signaled to investors that demand is increasing in the world’s largest oil consuming country. Crude shot up close to $1 a barrel immediately following the news, eventually peaking at $93.71 before reversing slightly to trade at the $93.50 level.
Turning to today oil traders will want to continue monitoring developments in the Middle East. Concerns about the conflict between Iran and the West turning into a full scale war have the potential to send the price of oil significantly higher. In addition, should any of the US news set to be released today show growth in the US economy, oil could see additional gains as a result.
The weekly chart’s Bollinger Bands have begun to narrow, signaling that a price shift could occur in the near future. In addition, the MACD/OsMA on the same chart has formed a bullish cross, indicating that the price shift could be upward. Traders may want to open long positions ahead of a possible bullish correction.
While the Williams Percent Range on the daily chart has crossed over into overbought territory, signaling a possible future downward correction, most other technical indicators place this pair in neutral territory. Traders may want to take a wait and see approach, as a clearer picture is likely to present itself in the near future.
In a sign of an impending shift in price, the Bollinger Bands on the weekly chart are narrowing. Furthermore, the Williams Percent Range on the daily chart has crossed into overbought territory, indicating that the price shift could be downward. Traders may want to open short positions ahead of a possible bearish correction.
The Relative Strength Index on the weekly chart is approaching the overbought zone, signaling a downward correction could occur in the coming days. Additionally, the MACD/OsMA on the same chart has formed a bearish cross. Going short may be the wise choice for this pair.
The Wild Card
A bearish cross on the daily chart’s Slow Stochastic points to a possible downward correction in the near future. This theory is supported by the Williams Percent Range on the same chart, which has crossed above the -20 level. This may be a good time for forex traders to open short positions ahead of a possible downward breach.
Written by Forexyard.com