EUR Drops to 10 Month Low over Trichet’s Criticism of IMF Involvement

The EU economic summit will likely be the focus today, as the final Greek rescue plan is expected to be delivered today. A satisfactory plan may provide the much needed push to the EUR which was plagued by the debt issues in the region.

Economic News

USD – USD at a 10 Month High versus the EUR

The Dollar reached a 10-month high versus the EUR yesterday after European Central Bank President Jean-Claude Trichet said any involvement of the International Monetary Fund in a rescue plan for the region is, “very, very bad.” The Dollar was further boosted by positive economic data from the U.S, stoking investors’ expectations of a sooner than expected interest rate hike by the Federal Reserve.

First time unemployment claims declined by 14,000 to 442,000 last week, beating investors’ expectations of a drop to 452,000. The mood was also elevated ahead of today’s release of the UoM final index of Consumer Sentiment which is expected to rise to 73 from a preliminary reading of 72.5.

The USD, however, was down versus commodity backed currencies such as the Australian, New Zealand and Canadian Dollars.

EUR – EUR Declines on ECB President Trichet’s Comments

The common currency declined to a 10 month low versus the USD yesterday following a discouraging speech by European Central Bank President Jean-Claude Trichet regarding the possible solutions to the issues of Greek sovereign debt. The EUR fell below the key $1.33 level after Mr. Trichet cautioned against International Monetary Fund involvement in the Greek bailout, reaching $1.3272 late Thursday.

In today’s early Asian trading , however, the EUR was able to recover slightly, advancing to $1.3319 from $1.3273 in New York yesterday, after earlier falling to $1.3268, the weakest since May 7. The EUR is currently at 123.10 Yen from 123.08 Yen. The Pound is at $1.4866.

JPY – Yen Advances versus USD

The JPY rose against the Dollar on speculation Japanese exporters bought the currency to bring home overseas earnings, taking advantage of the large weekly loss to purchase the currency before the end of the Japanese fiscal year next week. The Yen is currently at 92.48 per USD from 92.73 yesterday, when it fell to 92.96, the lowest level since Jan. 8. With no news from the region today, the Yen’s movement will likely be determined by news from Europe and the U.S, particularly any developments regarding the Greece sovereign debt recovery plans.

OIL – Crude Continues its Decline for 3rd Day

Crude oil for May delivery fell as much as 48 cents, or 0.6%, to $80.05 a barrel on the New York Mercantile Exchange yesterday. Oil prices fell for a 3rd day on week global equities and a strong U.S. Dollar. A stronger Dollar tends to weigh on commodities as it makes them more expensive for holders of other currencies. Continued discord among European leaders over the Greek rescue plan further pressured oil prices.

Supply of Oil remains high as Crude stockpiles increased 7.25 million barrels last week, according to an Energy Department report. Demand remains lagging which also pressures Oil prices.

In today’s early trading, Oil levels have recovered slightly, to currently trade around the $80.70 level, consistent with the recovery in the EUR/USD pair. The developments in the Euro-Zone will likely determine Oil’s movements for today.

Technical News

The price action of the latest bearish move on the 4-hour chart has been taking place below the 20-day moving average line of the pair’s Bollinger Bands. This line runs just underneath the downward sloping trend line on the 4-hour chart. Traders may want to wait for the price to appreciate to the 20-day moving average line as the 7-day RSI is sloping upward, then go short at the 20-day line or as the RSI line turns lower.
The daily chart shows the pair may have more room to run as a bearish cross has formed on the MACD Oscillator, indicating the downward price moving could continue. This may be confirmed by the 7-day Relative Strength Indicator. The RSI line has turned up and is snug against its downward sloping trend line. If the RSI line fails to break this trend line and turns lower, traders will want to enter into the market short, with a price target of the support line at 1.4782.
The pair has made a significant breach of the downward sloping trend line on the daily chart, rising as high as 92.95. The bullish streak could continue as it appears to have a bit of momentum behind the breakout. The MACD histogram is sloping up, indicating a strong uptrend. A first target for the pair may be the swing high of 93.75.
Yesterday’s rally in the currency stalled at the resistance level of 1.0750, but the rally could continue today. The daily chart shows the MACD histogram is sloping higher, indicating the pair could be in for another move higher. The price has also crossed above the 20-day moving average line of the Bollinger Bands. This signals the pair could climb to the upper line of the Bollinger Bands. Traders may want to use the upper Bollinger Band line as a price target.

The Wild Card

After a previous head and shoulders pattern failed to capitalize, a descending triangle pattern has formed on the daily chart for spot gold. The lower line of the triangle begins at the reaction low of the previous bullish trend on February 24th. The downward sloping hypotenuse of the triangle begins at the swing high of daily chart at a price of $1224.70, extending lower to form the vertex of the triangle. Forex and commodity traders may want to go long with a price target at the descending hypotenuse line above the price action.

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