Safe Haven Currencies Rise on High Risk Aversion

Traders moving assets to safer, lower yielding currencies appear to be playing a factor in the correction of the major crosses. The USD and JPY, which are seen as a safer bet than others currencies in times of market stress, will likely keep drawing demand as investors stay away from riskier assets.

Forex Market Trends

Daily Trend down down no up down no
Weekly Trend down down up up down no
Resistance 1.3600 1.5980 84.50 1.0075 0.9865 0.8600
1.3565 1.5935 84.05 1.0035 0.9825 0.8570
1.3530 1.5900 83.75 1.0000 0.9800 0.8530
Support 1.3470 1.5840 83.00 0.9945 0.9740 0.8455
1.3440 1.5810 82.70 0.9900 0.9710 0.8410
1.3405 1.5785 82.35 0.9870 0.9675 0.8370

Economic News

USD – Dollar Recovery Continues

The U.S. dollar rose broadly, climbing to a 7-week peak versus a basket of currencies as sharply lower stock and commodities prices boosted the greenback’s safe haven allure. The stronger dollar also prompted investors to unwind bets against the U.S. currency built up in recent months. As a result, the USD finished yesterday’s trading session 150 pips higher against the EUR at the1.3490 level. The greenback also saw bullishness against the GBP and closed at 1.5885.

Moreover, the dollar on Tuesday climbed against key currencies amid increasing concerns over the euro zone debt handling and prospects of an interest rate hike in China. Investors followed with concern the euro zone’s struggle to deal with alarming levels of sovereign debt, especially in Ireland, amid growing speculation that the former Celtic Tiger nation could be bailed out.

Looking ahead to today, the most important economic indicators scheduled to be released from the U.S. are the Building Permits, Core CPI and Crude Oil Inventories reports. Traders will be paying close attention to today’s announcements as stronger than expected results could further boost the USD in the short-term. Traders are also advised to follow a speech by FOMC member Bullard around 14:15 GMT. His speech is very likely to impact dollar volatility. Traders are advised to watch closely, as this is likely to set the pace of the dollar going into the rest of the week’s trading.

EUR – EUR Strength Not Likely to Return this Week

The EUR fell to a 7-week low against the U.S. dollar on Tuesday as investors grew increasingly risk-averse amid concern about fiscal problems in peripheral euro zone nations. By yesterday’s close, the EUR fell sharply against the USD, pushing the oft-traded currency pair to 1.3490. The 16-nation single currency experienced similar behavior against the JPY and closed at 112.40.

Ireland has come under intense pressure over its debt crunch, with a top European Union official saying the future of the 27-country union was at stake. Adding to worries was news that Greece will likely miss its fiscal targets this year and next, and Austria has not yet submitted its contribution to the aid package for Greece for December.

The British pound also fell to a session low against the dollar as Bank of England (BOE) Governor Mervyn King said it was a concern that UK inflation was above target. King said the central bank could do further quantitative easing if that turns out to be necessary. The GBP fell as low as 1.5839, before recovering to 1.5885 yesterday

JPY – Additional Volatility Forecasted with Light Japanese News Day

The Japanese yen strengthened against most of its major counterparts yesterday, continuing to prove that for the time being this is a solid currency that traders can rely on to provide them with steady profits. The yen extended gains versus the EUR on Tuesday, to trade around 112.40 amid a broad sell-off in the EUR. The JPY also saw bullishness against the GBP and closed at 132.40.

As for today, Japan will be absent from the economic calendar. The JPY’s trends will be affected by the rallies of its primary currency pairs. It seems the USD and EUR are expected to continue a volatile trading session today and their crosses with the JPY will likely be as well. Traders should keep a close look on the news coming from the U.S. and Europe as these economies will be the deciding factors in the JPY’s movement today, especially the U.S. Building Permits at 13:30.

Crude Oil – Crude Oil Falls 3%

Oil slumped 3% on Tuesday to a 2-week low as the dollar rose on euro zone debt concerns and as fears that China’s attempts to cool inflation will reduce demand. China’s move sparked a broad commodities sell off yesterday.

A stronger U.S. dollar can pressure oil, and other dollar-denominated commodities, by attracting investors to foreign exchange markets seeking higher yields, increasing the value of greenbacks paid to producers and making commodities more expensive for users of other currencies.

Oil has retreated after hitting a 25-month peak above $88 a barrel last Thursday, the highest prices since the financial crisis.

Technical News

The EUR/USD cross has experienced a bearish trend for the past few days. However, it seems that this trend may be coming to an end. The RSI of the 4-hour chart shows the pair floating in the over-sold territory, indicating that an upward correction may happen anytime soon. Going long with tight stops might be a wise choice.
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. When the upward breach occurs, going long with tight stops appears to be a preferable strategy
The hourly chart is showing mixed signals with its RSI fluctuating in the neutral territory. However, the daily chart’s RSI is already floating in the over-bought territory indicating that a bearish correction might take place in the nearest future. Going short with tight stops might be a wise choice.
The USD/CHF cross has experienced a bullish trend for the past week. However, it seems that this trend may be coming to an end. For example, the daily chart’s Stochastic Slow signals that a bearish reversal is imminent. A downward trend today is also supported by the 4-hour chart’s Slow Stochastic. Going short may turn out to pay off today.

The Wild Card

Crude Oil
Crude oil prices have dropped significantly yesterday and peaked at $82.50 a barrel. However, on the 8-hour chart, the RSI is floating in the over-sold territory which suggests that a bullish correction is impending. This might be a great opportunity for forex traders to enter the trend at a very early stage.

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