Dollar Advances on Riskier Currencies Following Fed Statement

The U.S. dollar traded well against riskier currencies like the AUD and loonie in overnight trading, but at the same time, took some losses on currencies like the yen and euro. Investors are trying to digest the most recent Fed statement and how it reflects the current state of the global economic recovery. Traders can expect this trend to continue, as we are expecting little in the way of significant news events today.

Economic News

USD – Greenback Makes Gains as Risk Aversion Resumes

Risk aversion appeared to rule the day on Thursday, and carried over into overnight trading today. The latest Fed statement gave a fairly pessimistic view about the current state of the U.S. economic recovery. This appears to be the case despite the fact that the most recent American unemployment number represented a significant improvement over last week’s figure. It appears that investors have now fully accepted the idea that American record low interest rates are to remain in place for the foreseeable future.

Generally speaking, when investors begin to fear the pace of the global economic recovery, they sell off their riskier assets and buy up safe-havens like the USD. Yesterday was no different, as the greenback was able to make fairly large gains on both the aussie and loonie. AUD/USD dropped some 75 overnight, before making a slight recovery in early morning trading. USD/CAD shot up almost 60 pips before leveling off. Currently the pair stands at approximately the 1.0415 level.

Today a relatively slow news day may lead to low volatility in the market place. Still, traders will want to watch out for the U.S. Final GDP figure, set to be released at 12:30 GMT, and the U.S. Revised UoM Consumer Sentiment Report at 13:55 GMT. Both reports have the potential to inject some life into the marketplace, with a result at or below expectations likely to benefit the greenback.

EUR – EUR Tumbles Vs. Safe Haven Yen

While the EUR/USD pair continues to fluctuate somewhat erratically, the European currency has continued to take losses against the Japanese yen. An increase in risk aversion has largely fueled the euro’s drop against the JPY. Late yesterday, the pair tumbled well over 100 pips, before making a slight correction in overnight trading. Currently the pair is trading around the 110.40 level. At the same time, the euro was able to make substantial gains against the British pound, shooting up some 75 pips yesterday.

Today, traders can expect the euro to have a relatively mild day, largely due to the lack of substantial European economic indicators. Furthermore, with investors likely to continue selling off their riskier assets, the euro may take some small losses in afternoon trading.

JPY – Safe Haven Yen Hits 1-Month High Against USD

USD/JPY tumbled yesterday to a 1-month low following the pessimistic American economic outlook painted by the U.S Federal Reserve yesterday. The pair was at one point trading as low as 89.25, dropping over 100 pips in 24 hours. The greenback was able to stage a mild recovery, moving up to its current level of around 89.55. The yen was also able to make some significant gains against the British pound yesterday, as GBP/JPY tumbled some 130 pips before correcting itself.

Today, the yen may very well continue with yesterday’s trend. Last night’s Tokyo Core CPI Report indicated that consumer prices in Japan fell at a slower rate then predicted, a positive sign for the Japanese economy. Furthermore, with U.S. dollar and euro both forecasted for slow close to the week, it is likely the Yen will once again come out on top.

Crude Oil – Crude Down for the Week on Fears of Continued Economic Crisis

Crude oil continued to trade below the $77.00 level in overnight trading, as renewed fears about the pace of the global economic recovery kept prices down. Continued low prices are setting up crude for its first weekly decline in the last 3-weeks. With investors selling off their riskier assets, traders can expect oil prices to remain around their current levels at least until next week.

At the same time, should the U.S. news set to be released today, turn out to be positive, crude prices could go up as risk taking may return to the marketplace. Traders will want to keep an eye on how currencies like the euro and British pound react to the news later. If they begin to move up, there is a good chance that oil may move up as well.

Technical News

The 4-hour chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, the daily Chart’s RSI is already floating in the overbought territory indicating that a bearish correction might take place in the nearest future. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.
The pair has been range-trading for a while now, with no specific direction. The Daily chart’s Slow Stochastic providing us with mixed signals. The 4 hour charts do not provide a clear direction as well. Waiting for a clearer sign on the hourlies chart might be a good strategy today.
The price of this pair appears to be floating in the over-sold territory on the daily chart’s RSI indicating an upward correction may be imminent. The upward direction on the hourly chart’s Momentum oscillator also supports this notion. Going long might be a wise choice.
The cross has experienced much bearishness in the past 3 weeks, and currently stands at the 1.1015 level. There is much evidence in the chart’s oscillators that supports a possible bullish correction today. This is supported by the daily chart’s RSI. Going long with tight stops may turn out to bring big profits today.

The Wild Card

SPI 200 (ASX)
After the recent sharp drop a correction may be taking place today as the RSI seems to be floating in the oversold territory on the hourly and 8 hour charts and a bullish cross is evident on the 4 hour chart’s Slow Stochastic. CFD traders may be advised to go long for the day.

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