Dollar Extends Gains against the Euro

The U.S currency rose Tuesday, extending gains, adding to investors’ desire of safe havens amid worries over global growth prospects, this time stemming from data in China and concerns about the health of European banks.

Economic News

USD – Dollar Rises on Risk Aversion

The U.S Dollar rose yesterday against its major counterparts on risk aversion as investors worried about the expiration of a key Euro-Zone refinancing program this week.

The Dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was 0.2% higher at 85.817, holding above last week’s low around 85.09.

The U.S currency extended gains against the EUR after the Conference Board’s consumer confidence index plummeted to 52.9 in June, from a downwardly revised 62.7 in May. Analysts said the EUR/USD pair is likely to remain under pressure until Thursday.

However against Japan’s currency which tends to be the biggest beneficiary of safe-haven flows when risk aversion is on the rise the USD fell to the lowest since December. The Dollar declined to 88.50 yen, down from 89.39 on Monday. A drop in U.S. Treasury yields, which makes U.S. debt less attractive to Japanese investors, had also been weighing on dollar/yen cross.

EUR – The EUR Hits Record Low on Swiss Franc

The European currency hit a lifetime low against the Swiss franc and a 3 week trough versus the Japanese yen on Tuesday ahead of a deadline for European banks to repay money to the European Central Bank (ECB). European banks must repay 442 billion euros ($545.5 billion) to the ECB on Thursday, leaving a potential liquidity shortfall in the financial system of over 100 billion euros.

The EUR fell as low as 1.3250 francs, the weakest since its 1999 launch. The 16 -nation currency also dropped 1% vs. Yen to its weakest in three weeks at 108.62 yen. Against the Dollar, the EUR fell 0.4 % on the day to $1.2235 after losing 0.8% on Monday. The EUR also hit a 19-month low against Sterling to 81.14 pence yesterday.

Financial markets will also closely watch debt auctions by France and Spain later this week after tepid demand for Italy’s sale of 7 billion euros of government bonds on Monday kept worries about Euro-Zone debt troubles alive. As such the EUR may extend its losses vs. its trading rivals at least till the situation is stabilized.

JPY – Yen Gains on Japan Exporter Repatriation

The Japanese yen benefited as Japanese exporters repatriated earnings ahead of the second quarter end, selling the EUR and Dollar, and as a steep fall in Shanghai stocks added to the Japanese currency’s safe-haven allure.

The Yen also gained even after Japanese data showed the country’s unemployment rate rose in May to a seasonally adjusted 5.2%, up from 5.1% in April and confounding expectations for a drop in joblessness.

Crude Oil – Crude Declines a 3rd Day on Concern over China

Crude Oil prices settled 3% lower Tuesday as a downward revision of a leading Chinese economic indicator sparked a broad market sell-off.

Oil dropped for a 3rd day on concern over weakening economic growth in China and as confidence declined more than forecast among consumers in the U.S., the world’s biggest energy user. Markets were roiled by fears of a slowdown in China, with investors flocking to the safety of Gold. Only ongoing fears that Tropical Storm Alex could still wreak havoc in oil-producing and refining areas in the Gulf of Mexico provided some support for the Crude prices.

Technical News

This pair is currently testing a significant support line at 1.2200. A number of indicators appear to be showing upward pressure. The 4-hour Stochastic (slow) has undergone a recent bullish cross and the RSI is floating in the over-sold territory as of this morning. Going long appears to be a preferable strategy today.
This pair has been trading within a bullish channel for a number of weeks with very few signals of stopping. However, we can see on the daily chart a number of indicators showing that this pair may come down in the near future. The daily Stochastic (slow) has just undergone a bearish cross and the RSI has recently exited the over-bought region and is now descending downward. We may see strong downward pressure if these technicals continue. Going short with tight stops might not be a bad idea today.
The cross has been dropping for the past 3 weeks now, as it now stands at the 88.50 level. However, the daily Chart’s RSI is already floating in the oversold territory indicating that a bullish correction might take place in the nearest future. Going long with tight stops may turn out to be the right choice today.
The pair has recorded much bearish behavior in the past several days. However, the technical data indicates that this trend may reverse anytime soon. For example, the daily chart’s Stochastic Slow signals that a bullish reversal is imminent. An upward trend today is also supported by the RSI. Going long with tight stops may turn out to pay off today.

The Wild Card

Crude Oil
Crude oil prices are once again dropping, and it is currently traded around $75.75 a barrel. And now, the 4-hour chart’s RSI is giving bullish signals, indicating that crude prices might go up. This might give forex traders a great opportunity to enter a very popular trend.

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