Euro Rallies; Merkel Calls for Strengthened Euro

The euro strengthened yesterday against most of the major currencies after reports showed better-than-expected figures for the U.S. economy. In a speech yesterday, German Chancellor Angela Merkel called to strengthen the euro, stating that the euro is the foundation of German prosperity.

Forex Market Trends

Daily Trend up no no no no up
Weekly Trend up no down down up up
Resistance 1.3420 1.5535 82.50 0.9475 1.0270 0.8720
1.3385 1.5500 82.10 0.9430 1.0235 0.8685
1.3350 1.5475 81.85 0.9400 1.0200 0.8650
Support 1.3270 1.5400 81.15 0.9350 1.0145 0.8600
1.3240 1.5370 80.70 0.9310 1.0110 0.8570
1.3205 1.5320 80.25 0.9275 1.0080 0.8525

Economic News

USD – U.S. Dollar Weakens As Risk-Appetite Rises

The U.S. dollar saw a bearish trend against most of the major currencies during yesterday’s trading session. The dollar fell about 90 pips against the euro, and the EUR/USD pair rose above the 1.3300 level. The dollar also saw a 100 pip drop against the Swiss franc.

The dollar fell after several positive economic releases from the U.S. boosted risk-appetite in the market and increased demand for higher-yielding assets. The initial jobless claims in the U.S. fell last week to its lowest level since July 2008. The number of individuals who filed for unemployment insurance for the first time decreased by 34,000 to 388,000 in the week ended December 24, beating expectations for 416,000 claims.

Another positive release was the U.S. Pending Home Sales report; the number of contracts to purchase previously owned homes rose more than projected in November. The pending home sales increased by 3.5 percent after a revised 10.1% in October, signaling that the housing sector in the U.S. is recovering in a faster pace than expected.

As for today, a light news day is expected due to New Year’s Eve. Traders are advised to follow the U.S. equity market as this is likely to have a large impact on the greenback.

EUR – Euro Rallies On Thursday’s trading; Markel Calls to Strengthen the Euro

The euro rallied against most of its major rivals on Thursday’s trading session. The euro gained about 90 pips vs. the U.S. dollar, and the EUR/USD pair rose above the 1.33 level. The euro also gained about 100 pips against the British pound and about 120 pips against the Japanese yen.

The euro strengthened yesterday after positive economic data from the U.S. signaled that the world’s largest economy is recovering, boosting demand for higher-yielding assets, such as the euro. The positive data was reflected in the lowest level of weekly jobless claims since July 2008 and in a 3.5% rise in the number of homes under contract to be sold in November, as opposed to October.

Moreover, German Chancellor Angela Merkel stated yesterday that Europe stands in the middle of a great test. Merkel claimed that the euro must be strengthened, adding that it is far more than a currency. Merkel said that the euro is the foundation of German prosperity, and that Germany needs Europe and its common currency. Merkel’s speech was partially directed towards analysts and investors, trying to ease speculations regarding the stability of the European shared currency.

Looking ahead to today, the most significant release on the economic calendar seems to be the British Nationwide House Price Index. This report measures the change in the selling price of homes with mortgages back by Nationwide. A positive result has the potential to support the pound, and to further boost the euro.

JPY – Yen Weakens as Risk-Aversion Decreases

The Japanese yen fell against most of its major currency counterparts during yesterday’s trading session. The yen lost about 120 pips vs. the euro, and the EUR/JPY pair reached as high as the 108.90 level. The yen also saw a 50 pip drop against the U.S. dollar.

The yen weakened yesterday after positive economic releases from the U.S. spurred demand for higher-yielding assets. Reports have shown that initial U.S. jobless claims fell last week to the lowest level since July 2008. In addition, the number of contracts to buy previously owned homes rose by 2.5% in November, following a record 10.1% rise in October.

As for today, Japanese banks will be closed in observance of a four-day bank holiday. Traders should also take under consideration that a light news day is expected due to New Year’s Eve.

Crude Oil – Crude Oil Falls to $89 a Barrel

Crude Oil experienced a sharp drop in prices yesterday. Crude began yesterday’s trading session around $91.30 a barrel, and saw a 230 pip fall in a single trading day, reaching as low as $89.02 a barrel.

Crude prices fell after the U.S. Crude Oil Inventories report showed a smaller-than-forecasted drop in inventories. The Energy Department said today that oil supplies have declined by 1.26 million barrels to 339.4 million in the week ended December 24, beating analyst projections for a 2.85 million barrels decrease. The supply data had a dampening effect on oil prices, resulting in crude’s fall to $89 a barrel.

Technical News

This pair began recovering about two days ago, and is currently trading near the 1.3300 level. Currently, both the MACD and the Slow Stochastic on the daily chart are pointing up, suggesting that another bullish session might be expected.
The cable is being traded within a restricted range over the past couple of weeks, and is currently trading within the midst of the range around the 1.5440 level. Nevertheless, a bullish cross of the Slow Stochastic on the 4-hour chart indicates that a bullish move might be impending. Going long might be the right choice today.
The USD/JPY has been falling sharply over the past couple of weeks, and an “M” candlestick formation is about to be completed on the daily chart. The next significant support level appears to be located on the 80.00 level, leaving the bearish trend with plenty of room to proceed. Going short seems to be the right strategy today.
This pair’s bearish trend appears to be continuing. All oscillators on the daily chart are now pointing down, indicating that the bearish move has more steam in it. Going short with tight stops might be the right strategy today.

The Wild Card

Crude Oil
Crude Oil saw a very sharp decline yesterday, falling over 230 pips in a single-trading session, and reaching as low as $89.02 a barrel. The RSI on the daily chart has dropped below the 70-line, suggesting that another bearish move might take place. In addition, the daily chart’s MACD has recently completed a bearish cross, further strengthening the bearish notion. This might be a great opportunity for forex traders to catch the trend at its beginning.

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