USD Continues to Gain on Return to Risk Aversion

The USD continued to advance Tuesday against major currencies as a measure of U.S. consumer confidence registered an unexpected decline for October. Gold futures extended losses from the previous session as the USD rose. December Gold fell $7.40, to settle at $1,035.40 an ounce on the Comex division of the New York Mercantile Exchange and is currently trading around $1041.

Economic News

USD – USD Gains on Weak Consumer Confidence

The USD gained against the EUR for the second session in a row on Tuesday, after the release of unexpectedly weak U.S. confidence data intensified risk aversion with investors. Further concerns arose about the possibility the Federal Reserve will signal an eventual end to its stimulus policy stance at its FOMC meeting next week. The dollar index rose to 76.233, up from 76.100 late Monday, recovering from losses seen during Tuesday’s earlier session.

The Conference Board’s index of consumer confidence declined to 47.7 from a revised reading of 53.4 last month. This weakness mirrors the continuous rise in unemployment levels and undermines stabilization in other areas of the economy such as stabilization in financial markets and home prices.

Looking ahead for today, the release of the Core Durable Goods Orders at 12:30 GMT and New Home Sales at 14:00 GMT will likely cause volatility for the USD pairs. Further disappointing data may push the EUR/USD pair even lower.

EUR – EUR Down ahead of the Release of Key German Data

The EUR hit a session low at $1.4769 Tuesday afternoon, its lowest level since Oct. 13. Late Tuesday, the EUR was at $1.4802, down from $1.4865 late Monday and off a 14-month high of $1.5064 seen at the start of Monday’s session. The EUR was at ¥135.88, down from ¥137.08. The U.K. pound was at $1.6389, up from $1.6324.

Along with the disappointing U.S consumer confidence report, the EUR was down on an expectation the German jobless rate probably rose to 8.3% in October from 8.2% in the previous month before tomorrow’s report. Furthermore, according to analysts, the six month rally in stocks and commodities is probably at its peak as U.S. growth continues to lag, further hurting the appeal of riskier assets such as the EUR.

Looking ahead to today, investors should follow the release of the German CPI report which is forecasted to show consumer prices worsened, putting further pressure on the EUR

JPY – Yen Gains on Return to Risk Aversion

The JPY gained against major counterparts on speculation the global economic recovery will slow, reducing demand for high yielding assets. The Yen rose to 135.55 per EUR in today’s early trading, from 135.89 yesterday, after earlier reaching 135.43, the highest level since Oct. 21. The JPY traded at 91.50 per USD, up from 91.80 Tuesday.

The Yen traded near a one week high against the EUR ahead of reports due today and tomorrow that are forecasted to show German consumer prices and unemployment worsened, reiterating the notion that the European Central Bank (ECB) will keep interest rates low.

Japan’s retail sales fell for a 13th month in September. Sales slid 1.4% from a year earlier. The continuous poor data reinforces the idea that recovery will be slow.

Oil – Crude Prices Up ahead of Inventory Data

Crude Oil futures rose Tuesday, breaking a three day losing streak. Light, sweet crude for December delivery settled 87 cents, or 1.1%, higher at $79.55 a barrel on the New York Mercantile Exchange. A buying surge late in Tuesday’s session overturned Crude’s earlier losses caused by a stronger Dollar.

A report due today at 14:30 GMT is expected to show U.S Oil Inventories increased slightly. However, despite high Oil inventories, as long as equity markets stay stable the price of Oil should go up. Strong equities support Oil Prices as was evident Tuesday; despite weak consumer confidence, there was still appetite for riskier assets such as stocks and Oil.

Technical News

The price of this pair appears to be floating in the over-sold territory on the RSI of the 4-hour chart, signaling an impending upward move. The fresh bullish crosses on the hourly chart’s Slow Stochastic and MACD support this notion. Going long appears to be a good strategy today
The price of this pair has been sending mixed signals over the past few days as it continues to trade in a wide range. There appears to be a bearish cross on the hourly chart’s Slow Stochastic; however, a fresh bullish cross has just occurred on the hourly chart’s MACD. With bullish and bearish crosses on the MACDs of the 4-hour and daily charts, respectively, traders may find it difficult to choose a direction. Waiting for a clearer signal might be a wise choice today.
The sustained downward movement these past few trading days has apparently generated a bullish cross on the hourly chart’s Slow Stochastic, indicating a short-term upward correction may occur shortly. As the weekly Momentum oscillator begins to turn a corner, we may very well be seeing a reversal in the making. Going long to enter this new trend may be a wise move today.
Last days’ sharp upward movement appears to have pushed the price of this pair into the over-bought territory on the RSI of the 4-hour and daily charts, indicating a downward correction may be due. The volatile breach of the upper border on the 4-hour chart’s Bollinger Bands also signals strong downward pressure. Going short might be a wise choice today.

The Wild Card

There appears to be a fresh bullish cross on the 1 hour chart’s Slow Stochastic for this pair, signaling an upward movement may be in the making. With its sustained downward movement over the past days, this pair is overdue for a rebound. With fresh bullish crosses on the MACD for the hourly, 4-hour charts, this rebound may indeed be developing. Forex traders can definitely take advantage of this swing by buying this pair now, and at a great entry price.

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