EUR Reverses Earlier Gains

The euro gave up its recent gains against the US dollar and Japanese yen yesterday, following a combination of negative euro-zone news which led to an increase in risk aversion. Worse than expected indicators out of both Germany and France, along with political uncertainty following the first round of elections in France was largely to blame for the euro’s bearish trend. Today, euro traders will want to pay attention to debt auctions out of Italy and the Netherlands. Positive results from the auctions could help the common currency. Furthermore, the US CB Consumer Confidence and New Home Sales figures are set to generate market volatility when they are released at 14:00 GMT.

Forex Market Trends

Daily Trend down no down up down down
Weekly Trend down up down down down down
Resistance 1.3235 1.6205 81.70 0.9210 1.0330 0.8370
1.3215 1.6185 81.50 0.9190 1.0310 0.8350
1.3185 1.6155 81.20 0.9160 1.0280 0.8190
Support 1.3125 1.6095 80.60 0.9100 1.0220 0.8130
1.3095 1.6065 80.30 0.9070 1.0190 0.8100
1.3075 1.6085 80.10 0.9050 1.0170 0.8080

Economic News

USD – Risk Aversion Leads to Bullish Dollar

The US dollar saw gains against most of its main currency rivals yesterday, including the euro and Australian dollar, following negative euro-zone news which caused investors to revert their funds back to safe haven currencies. The EUR/USD, which last week saw its biggest gains since February, dropped close to 100 pips during the European session, reaching as low as 1.3126. The aussie tumbled well over 100 pips against the greenback during mid-day trading, reaching as low as 1.0279.

Turning to today, dollar traders will want to pay attention to several indicators out of the US which have the potential to create market volatility. The CB Consumer Confidence and New Home Sales figures, both scheduled for 14:00 GMT, are forecasted to show growth in the housing and retails sectors of the US economy. If true, the dollar may be able to reverse its current bearish trend vs. the Japanese yen, while extending its gains against the euro and aussie.

For the rest of the week, traders will want to remember that several potentially significant indicators are scheduled to be released out of the US. Tomorrow in particular could prove to be volatile following the FOMC Economic Projections. Furthermore, Thursday’s Pending Home Sales followed by Friday’s Advance GDP figure means that the USD could see plenty of movement in the coming days.

EUR – Political, Economic Uncertainties Weigh Down on Euro

After making significant gains toward the end of last week’s trading session, the euro once again turned bearish yesterday. Investor concerns regarding the political situations in France and the Netherlands, in addition to economic worries out of Italy and Spain, all contributed to an increase in risk aversion in the marketplace. The EUR/JPY fell over 140 pips yesterday, reaching as low as 106.34 during mid-day trading. Against the British pound, the euro fell close to 50 pips over the course of the day, reaching as low as 0.8150 before staging a mild upward correction.

Turning to today, euro traders will want to pay attention to the results of Italian and Dutch debt auctions. While positive results could lead to gains for the euro, analysts are quick to warn that given all the problems in the euro-zone, any bullish movement may be temporary. In addition, traders should note any announcements regarding the upcoming elections in France and the Netherlands. Any radical changes in the make-up of either government may lead to further bearish movement for the euro.

JPY – Yen Sees Gains across the Board

The yen turned bullish against its main currency rivals yesterday, as poor euro-zone news resulted in gains for safe-haven currencies. In addition to the major gains see against the euro, the JPY was also up close to 70 pips against the US dollar and over 150 pips against the British pound. Analysts attributed the yen’s bullish trend to a worse than expected news out of both France and Germany, the euro-zone’s two biggest economies, as well as political uncertainty following the first round of French presidential elections held this past Sunday.

Turning to today, yen traders will want to monitor US news, scheduled to be released at 14:00 GMT. Should any of the indicators come in above analysts’ expectations, the US dollar could reverse some of its earlier losses during the afternoon session. Furthermore, traders will want to note that the Bank of Japan is scheduled to have a policy meeting on Friday, in which it is widely expected to implement fresh monetary easing steps. If true, the yen could turn bearish before the week is over.

Crude Oil – Crude Oil Falls Over $2 amid Risk Aversion

Risk aversion in the market place, largely due to economic and political uncertainties in the euro-zone, caused riskier assets like crude oil to tumble during yesterday’s trading session. In addition, news that Chinese demand for oil recently fell to its lowest level in five-months resulted in a steep drop for the commodity. The price of crude fell over $2 a barrel, reaching as low as $101.90 during mid-day trading.

Turning to today, oil traders will want to continue monitoring any developments out of the euro-zone. Further negative news may generate additional risk aversion in the marketplace. In addition, potentially significant US news is scheduled to be released this afternoon. Should that news lead to gains for the US dollar, the price of oil may drop as a result.

Technical News

The daily chart’s Slow Stochastic appears to be forming a bearish cross, indicating that downward movement could occur in the near future. This theory is supported by the Williams Percent Range on the same chart which has crossed into overbought territory. Traders may want to go short in their positions.
The weekly chart’s Williams Percent Range has crossed into overbought territory in a sign that this pair could see a bearish correction in the coming days. In another sign that downward movement may occur, the daily chart’s Relative Strength Index is moving up and may cross into the overbought region shortly. Traders may want to go short in their positions.
Most long term technical indicators show this pair trading in neutral territory, meaning that no definitive trend is known at this time. That being said, the daily chart’s MACD/OsMA has formed a bullish cross. Traders will want to keep an eye on other indicators on this chart, as they may provide further clues as to a possible impending upward correction.
A bullish cross on the daily chart’s Slow Stochastic appears to be forming, in a sign that upward movement could occur in the near future. In addition, the Williams Percent Range on the same chart is currently at -80, right on the border of being in oversold territory. Going long may be the preferred strategy for this pair.

The Wild Card

The daily chart’s Williams Percent Range and Relative Strength Index have dropped into oversold territory, indicating that this pair could see upward movement in the near future. This may be a good time for forex traders to open long positions, as a bullish correction could occur.

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