Euro Tumbles Following Ratings Downgrade

The combination of a worse than expected Italian debt auction and the credit downgrading of several euro-zone countries on Friday, caused the euro to slip to fresh lows once again before markets closed for the week. Today, with US markets closed for a bank holiday, trades will want to pay close attention to any news out of the euro-zone, particularly the speech from the ECB President scheduled for 18:00 GMT.

Forex Market Trends

Daily Trend up up down up up down
Weekly Trend down down down up down down
Resistance 1.3005 1.5555 77.29 0.9510 1.0384 0.8401
1.2933 1.5490 77.13 0.9459 1.0350 0.8358
1.2875 1.5441 76.99 0.9417 1.0295 0.8326
Support 1.2815 1.5392 76.84 0.9376 1.0244 0.8290
1.2744 1.5332 76.72 0.9325 1.0203 0.8254
1.2626 1.5235 76.54 0.9242 1.0163 0.8222

Economic News

USD – USD Stages Reversal to Close out Week

After taking mild losses against its main currency rivals for the majority of last week, the USD was able to rally on Friday, as poor euro-zone news caused traders to shift their assets to safe-haven currencies. The EUR/USD hit a fresh 16-month-low after credit ratings for a number of euro-zone countries were downgraded. In addition to making gains on the euro, the greenback also turned bullish against both the Japanese yen and Swiss franc.

Turning to today, traders should note that US markets will be closed for a bank holiday and the dollar’s direction will likely be determined by news out of the euro-zone. Traders may want to pay careful attention to a speech from the ECB President later in the afternoon. With no dramatic announcements expected from the speech, investors may decide to extend the safe-haven dollar’s bullish run for another day.

Looking ahead to later in the week, news out of the US housing sector is forecasted to impact the dollar. The US housing crisis has been one of the biggest obstacles to economic recovery. Should this week’s data reinforce that sentiment, the USD may see some setbacks against some of the other safe-haven currencies, specifically the CHF and JPY.

EUR – EUR Hits Fresh Lows Following Credit Downgrades

The EUR finished last week on a decidedly bearish note, following the credit downgrade of a number of euro-zone countries. The common currency hit a fresh 11-year low against the yen and dropped to a 16-month low against the US dollar. In addition to the credit downgrade, investor pessimism in the euro-zone was also fooled by an apparent breakdown in talks over a Greek debt-swap and a worse than expected Italian debt auction on Friday.

This week, all eyes remain on the euro-zone to see if any viable solution to the current crisis will be announced. Today, the euro may see slight gains during the morning session as traders could deem the dollar overvalued and unload some of their short EUR/USD positions. Later in the day, a speech from the ECB President may set the tone for the common currency during evening and overnight trading. Traders will also want to pay attention to the German ZEW Economic Sentiment figure on Tuesday. As the biggest euro-zone economy, German fundamental indicators tend to have a significant impact on the euro.

JPY – EUR/JPY Hits Fresh 11-year Low

The Japanese yen finished off last week on a bullish note, as the currency hit a fresh 11-year high against the euro. The EUR/JPY fell following poor fundamental euro-zone news that highlighted just how fragile the current European crisis is. Investors responded to the news by shifting their assets to the safe-haven yen. Among the majors, the JPY is often viewed as a stable, less risky currency. Against the US dollar, the yen was not as fortunate as the USD/JPY shot up to close out the week at 76.95.

This week, the yen will once again be guided by euro-zone and US fundamental news. Further negative news out of Europe may lead to additional gains for the JPY against the common currency. What will be more interesting to see is how the yen reacts to a batch of US housing and manufacturing data set to be released later in the week. Last week’s US fundamentals came in below expectations. Should this week’s follow the same trend, the JPY may be able to recoup some of its recent losses against the greenback.

Crude Oil – Crude Continues to Fall Following EU News on Oil Embargo

Crude oil closed last week on a bearish note, after news that any EU ban on imported Iranian oil will likely be phased in over the next several months. The news helped settle investor fears that oil imports into Europe would not be disturbed in the immediate future. Crude oil finished out the week below the psychologically significant $100 a barrel level, following weeks of bullish movement due to Middle East tensions.

This week, traders will want to keep an eye on any developments in the Middle East. Further escalations in the conflict between Iran and the West will likely drive the price of oil significantly up. In addition, any news regarding the EU debt crisis is likely to influence the price of crude. The price of oil tends to rise and fall along with the euro. Should the common currency maintain its bearish trend, oil may follow.

Technical News

Most long term technical indicators place this pair in oversold territory, meaning an upward correction is possible in the near future. The daily chart’s Williams Percent Range is around the -95 level, while the weekly chart’s Relative Strength Index has drifted below 30. Going long this week may be a wise choice.
Following last week’s bearish trend, technical indicators are now showing this pair trading in neutral territory. The daily chart’s Relative Strength Index is currently at 40, which typically signifies that no significant movement is expected in the near future. Traders may want to take a wait and see approach for this pair.
Most long term technical indicators are placing this pair in neutral territory, meaning that it may maintain its current trend for the time being. That being said, the Bollinger Bands on the daily chart appear to be tightening. If this continues, a price shift may take place. Traders will want to take a wait and see approach for this pair.
Technical indicators on both the daily and weekly charts are placing this pair in overbought territory, meaning a downward correction may take place. A bearish cross appears to be forming on the weekly chart’s Stochastic Slow, while the daily chart’s Williams Percent Range has gone above the -20 level. Traders may want to think about going short in their positions.

The Wild Card

Following last Friday’s bearish run, technical indicators are now predicting an upward correction for the pair. The 8-hour chart’s Williams Percent Range is currently below the -80 level, while the 4-hour chart’s Stochastic Slow has formed a bullish cross. Forex traders may want to consider going long in their positions today.

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