The euro fell against the US dollar for the first time in a week on Friday, as questions regarding how the European Central Bank plans on containing the euro-zone debt crisis led to risk aversion in the marketplace. In addition, a worse than expected US Core Durable Goods Orders figure caused crude oil to reverse gains from earlier in the day. This week, traders will want to note a batch of potentially significant news events, including a speech from Fed Chairman Bernanke on Friday. Investors will be looking for clues in the speech regarding a possible new round of quantitative easing to boost the US economic recovery.
Forex Market Trends
USD – US Data Set to Generate Volatility This Week
The US dollar closed out last week on a moderately bullish note, as questions regarding the ECB’s ability to revive euro-zone economies, combined with worse than expected US data led to risk aversion in the marketplace. The USD/CHF gained more than 60 pips during the first half of the day, reaching as high as 0.9620, before staging a mild reversal. The pair finished out the day at 0.9595. After dropping more than 25 pips during early morning trading, the USD/JPY was able to recover its earlier losses during the afternoon session and finish out the week at 78.67.
This week, a batch of potentially significant US news is set to generate market volatility. Traders will want to note the results of Tuesday’s CB Consumer Confidence and Wednesday’s Prelim GDP and Pending Home Sales figures. Finally, investors are eagerly awaiting a speech from Fed Chairman Bernanke on Friday. Last week, the Fed hinted that a new round of monetary stimulus could happen as early as next month. If Bernanke’s speech reinforces that notion, the dollar could take significant losses as a result.
EUR – Ongoing Concerns Regarding Debt Crisis Weigh Down on Euro
After hitting a new seven-week high last Thursday against the US dollar, the euro was not able to sustain its earlier upward momentum before markets closed for the weekend. The EUR/USD fell more than 80 pips during morning trading to reach as low as 1.2480. An upward correction during the second half of the day resulted in the pair finishing out the day at 1.2513. The common-currency saw similar movement against the Japanese yen. After dropping more than 70 pips to trade as low as 97.96, the EUR/JPY was able to bounce back to close out the day at 98.44.
This week, several euro-zone indicators could lead to volatility for the euro. Today, the German Ifo Business Climate could lead to risk taking in the marketplace if its comes in above the forecasted 102.7. Traders will also want to note the results of Thursday’s Italian ten-year bond auction. High borrowing costs in Italy are one of the main concerns among investors regarding the euro-zone debt crisis. If there is solid demand for Italian bonds on Thursday, the euro could see significant gains.
Gold – Gold Finishes Week Close to 4-Month High
Hopes that the Fed will initiate a new round of monetary stimulus to boost the US economic recovery caused gold to remain close to a four-month high hit earlier in the week on Friday. The precious metal gained more than $7 an ounce for the day and closed out the week at $1669.98, just below its recent high of $1674.93.
This week, in addition to US news which is likely to lead to volatility for gold, traders will also want to pay attention to today’s German Ifo Business Climate figure and an Italian bond auction on Thursday. Any signs that the euro-zone economic recovery is speeding up could help gold extend its recent bullish trend.
Crude Oil – Crude Oil Comes Off Recent Highs
After hitting its highest level since early May during the middle of last week, worse than expected US news caused crude oil to turn bearish before markets closed for the weekend. A disappointing Core Durable Goods Orders figure led to fears that demand in the US could slow down, and caused the commodity to slip more than $1 a barrel during afternoon trading on Friday. Crude finished out the week at $96.04.
Turning to this week, traders will want to pay attention to a batch of US news set to be released in the coming days. Perhaps most importantly, a speech from Fed Chairman Bernanke on Friday is set to generate market volatility. Any mention of a new round of quantitative easing is likely to lead to risk taking in the marketplace, which could result in major gains for oil.
The weekly chart’s Bollinger Bands are beginning to narrow, signaling that this pair could see a price shift in the near future. Furthermore, the MACD/OsMA on the same chart has formed a bullish cross, indicating that the price shift could be upward. Opening long positions may be the wise choice.
While the Williams Percent Range on the weekly chart has crossed over into overbought territory, most other long-term technical indicators are currently in neutral territory. Taking a wait and see approach for this pair may be the best choice, as a clearer picture is likely to present itself in the near future.
The Bollinger Bands on the weekly chart are narrowing, signaling a possible price shift could occur in the coming days. In addition, the MACD/OsMA on the same chart appears close to forming a bullish cross. Traders will want to keep an eye on this indicator. If a bullish cross does indeed form, it may time to open long positions.
Most technical indicators on the daily and weekly charts show this pair range-trading, making it difficult to predict long-term price trends. Traders may want to take a wait and see approach, as a clearer picture is likely to present itself later in the week.
The Wild Card
The Relative Strength Index on the daily chart is very close to dropping into oversold territory, indicating that upward movement could occur in the near future. Additionally, the Slow Stochastic on the same chart has formed a bullish cross. Forex traders may want to open long positions ahead of a possible upward breach.
Written by Forexyard.com