Sovereign-Debt Concerns Weaken the Euro on All Fronts

The main discussion in the market yesterday revolved around the European debt concerns, especially regarding Irish bonds. This has reduced risk appetite in the market and decreased appeal for the euro. As a result, the dollar continued with bullish momentum and the EUR/USD pair is now trading near a 6-week low.

Forex Market Trends

Daily Trend down down no no down up
Weekly Trend down down up up down down
Resistance 1.3705 1.6155 83.35 0.9870 1.0020 0.8565
1.3675 1.6130 83.00 0.9830 0.9985 0.8530
1.3645 1.6100 82.75 0.9800 0.9950 0.8500
Support 1.3575 1.6030 82.15 0.9750 0.9875 0.8445
1.3540 1.6000 81.70 0.9720 0.9845 0.8410
1.3500 1.5970 81.25 0.9685 0.9805 0.8375

Economic News

USD – Dollar Reaches 6-Week High vs. Euro

The U.S. dollar rallied against most of its major counterparts yesterday. The greenback gained about 200 pips vs. the euro, and the EUR/USD pair fell near the 1.3600 level, marking a 6-week low. The dollar saw gains against the Japanese yen and the British pound as well.

The dollar gained yesterday on concerns that some European countries will have difficulties paying their debts. This caused a drop in global stocks and as a result decreased demand for riskier assets. In addition, a sequence of positive data that was published from the U.S. economy lately is also supporting demand for the greenback. U.S. payrolls increased by 151,000 jobs in October, more than double the forecast.

This was the first month of positive employment change since July. In addition, the U.S. Trade Balance and the weekly Unemployment Claims reports have provided better results than anticipated as well. It appears that positive data, combined with European debt concerns, has managed to reduce the effect of the Federal Reserve’s debt purchase program. As a result, the dollar, which was expected to be debased, is rising almost on all fronts.

Looking ahead to today, the most significant release from the U.S. economy looks to be the Preliminary Consumer Sentiment. Analysts have forecast that consumer confidence rose to a reading of 69.1 during the past month, from 67.7 on the October release. Such a result has potential to boost the dollar further against its major counterparts.

EUR – Euro Sharply Falls on European Sovereign-Debt Concerns

The euro fell against all the major currencies during yesterday’s trading session. The euro fell about 200 pips against the U.S. dollar, and the EUR/USD pair is now trading near a 6-week low. The euro saw a 100 pip drop against the British pound and the Japanese yen as well.

The euro fell yesterday on growing uncertainty regarding Ireland’s ability to repay its debts. Investors are worried that Ireland won’t be able to cut spending as planned, and may require a bailout. It was also reported yesterday that euro zone members are checking whether Ireland needs financial aid from a 750 billion euro rescue fund.

The renewed speculations regarding the European debts are decreasing the appeal of the euro, and have turned investors to purchase safer assets, such as the U.S. dollar. It appears that until concrete data will show that Ireland can sustain its debts, the euro might see further bearishness against most of the major currencies.

As for today, a batch of data is expected from the euro zone. The most significant release seems to the German Preliminary Gross Domestic Product (GDP). The GDP measures the change in value of all goods and services produced by an economy. Analysts have forecast that German GDP rose by 0.8% during the 3rd quarter. Such a result might correct some of the euro’s recent losses. Traders are also advised to follow the European Flash GDP and the Industrial Production reports today, as these could impact the currency as well.

JPY – Yen Sees Mixed Results vs. Majors

The Japanese yen saw a very volatile session against its major rivals on Thursday. The yen fell about 40 pips vs. the U.S dollar, and the USD/JPY pair is trading near a 1-month high. The yen however gained about 100 pips vs. the euro and the EUR/JPY pair has dropped to the 112.10 level.

The yen fell against the dollar yesterday as U.S. Treasury 10-year yields near a 7-week high made dollar assets more attractive to international investors. The yen also fell versus the greenback due to the boosted demand for the dollar. On the other hand, the yen rallied against the euro on concerns that some European countries, Ireland in particular, might have difficulty paying their debts. As a result, the euro fell on all fronts, and the yen was no exception. It currently seems that the ongoing speculations regarding European sovereign debt might strengthen the yen against the euro further.

Looking ahead to today, no significant news releases are expected from the Japanese economy. Traders are advised to follow the leading publications from the U.S. and the euro zone. Special attention should be given to the U.S. Preliminary Consumer Sentiment and the German Preliminary GDP, as these reports are likely to have the largest impact on the market today.

Crude Oil – Crude Oil Drops to $86.30 a Barrel

Crude oil dropped for the first time in three days during yesterday’s trading session. Crude began yesterday’s trading with a bullish move, and reached as high as $88.60 a barrel. However, a sharp drop took place, and a barrel of crude oil was traded for $86.30.

Crude oil fell yesterday following the U.S. dollar’s appreciation versus the euro, which reduced the appeal of raw materials. The dollar gained about 200 pips against the euro yesterday following speculations that several European countries will have difficulties paying off their debts. As a result, dollar-denominated commodities, such as crude oil, have weakened.

As for today, traders are advised to follow the leading publications from the U.S., especially the Preliminary Consumer Sentiment. A higher consumer sentiment will mean that U.S. citizens feel more financially secure, and are likely to increase their demand for energy. This might correct some of crude oil’s losses from yesterday.

Technical News

The pair is currently in the midst of very strong bearish momentum, and has fallen over 200 pips during trading yesterday. Currently, the MACD on the daily chart continues to provide bearish signals, suggesting that the pair might drop further with the potential to reach the 1.3560 level.
The cable recently peaked at the 1.6175 level, but ever since it has provided bearish signals and is currently trading near the 1.6060 level. In addition, the RSI on the 4-hor chart has dropped below the 70 line – suggesting that further bearishness is impending. Going short might be the right choice today.
The pair saw very little changes during yesterday’s trading session and has remained around the 82.20 level. However, now, as all oscillators on the daily chart are pointing up, it appears that a bullish move might take place soon. Going long with tight stops might be the preferable strategy today.
The pair is gradually rising since the beginning of the week, and is now trading near the 0.9770 level. In addition, the MACD on the 4-hour chart indicates that the bullish move has more room to go, with a key target level of 0.9820.

The Wild Card

Crude Oil
Crude oil corrected some of this week’s gains during yesterday’s trading session, as it sharply dropped to $86.26 a barrel. Currently, a bearish cross on the daily chart’s Slow Stochastic suggests that the bearish move could be extended today. The RSI is pointing down as well, and if the RSI will fall below the 70-line it might verify the bearish move. This might be a good opportunity for forex traders to catch the trend at its beginning.

Written by