The euro continued to tumble vs. its main currency rivals yesterday, as traders remained cautious about investing in riskier assets due to political uncertainty in the euro-zone. The EUR/USD fell to a fresh three-month low during the afternoon session at 1.2929. Turning to today, traders should be prepared for market volatility, as significant indicators from the UK and US are scheduled to be released. Attention should be given to the UK MPC Rate Statement, followed by the US Trade Balance figure and a speech from Fed Chairman Bernanke. Should any of the news lead to additional pessimism in the global economic recovery, riskier currencies like the euro may fall further.
Forex Market Trends
USD – Safe Haven Dollar Extends Gains amid Euro-Zone Worries
A lack of news events yesterday helped the dollar extend its recent bullish trend, as the political uncertainty in the euro-zone following recent elections in France and Greece caused investors to keep their funds with safe haven assets. The AUD/USD dropped close to 70 pips over the course of the day, reaching as low as 1.0031. The GBP/USD fell close to 90 pips, reaching as low as 1.6066 before rebounding slightly to 1.6090. That being said, the news was not all positive for the dollar. The USD/JPY continued to fall throughout the day, reaching as low 79.42.
Turning to today, dollar traders will want to pay attention to a batch of US news scheduled to be released over the course of the day. At 12:30 GMT, the latest Trade Balance and Unemployment Claims figures will be announced. With both forecasted to come in worse than their previous readings, the dollar may continue to slide against the JPY. At 13:30, all eyes will be on a speech from Fed Chairman Bernanke. Any indications in the speech that the Fed will initiate a new round of quantitative easing in the near future could lead to additional losses for the dollar against other safe-haven currencies.
EUR – Risk Aversion Leads to Additional Euro Losses
The euro extended its downward trend yesterday, as fears of additional turmoil in the euro-zone prevented investors from shifting their funds to riskier assets. In addition to the EUR/USD, which dropped to a fresh three-month low during the European session, the common currency also tumbled against the JPY and GBP. The EUR/JPY fell close to 100 pips, reaching as low as 102.89 during afternoon trading. After seeing moderate gains earlier in the day, the EUR/GBP once again turned bearish during the afternoon and fell below the 0.8030 level.
Turning to today, euro traders will want to pay attention to the French Industrial Production figure, scheduled for 06:45 GMT, followed by the ECB Monthly Bulletin at 08:00. Analysts are forecasting a steep drop in the French production figure over last month. If true, it could result in further risk aversion in the marketplace which may lead to additional euro losses during mid-day trading. Later in the day, a speech from Fed Chairman Bernanke may generate volatility for the EUR/USD pair. Any signs that the Fed may initiate a new round of quantitative easing could help the euro recover some of its recent losses against the greenback.
Gold – Weakened Demand Leads to Drop in Price of Gold
The price of gold fell throughout the day yesterday, as risk aversion in the marketplace caused investors to turn bearish toward the precious metal. Additionally, a weak euro made gold more expensive for international buyers which in turn led to a drop in price. Gold declined over $15 an ounce, reaching as low as 1580.20 during European trading.
Today, analysts are warning that gold still has more room to fall as long as investors remain worried regarding euro-zone economic growth prospects. That being said traders will want to pay attention to several US indicators set to be released during the afternoon session. Should any of them cause the USD to reverse its current bullish trend, gold may be able to recoup some of its recent losses.
Crude Oil – Oil Remains Bearish Due to High US Inventories
The price of crude oil extended its bearish run yesterday, as near record high stockpiles of the commodity in the US signaled weakened demand in the world’s largest oil consuming country. The price of crude dropped close to $2 a barrel over the course of European trading, reaching as low as $95.16.
Turning to today, traders will want to pay attention to a batch of US news. Should any of it come in below expectations, the dollar could reverse its current bullish trend, in which case the price of oil may be able to rebound during the afternoon session. That being said, with investors preoccupied with the political situation in Europe, any impact the US news has may be limited.
A bullish cross on the daily chart’s Slow Stochastic indicates that this pair could see upward movement in the near future. This theory is supported by the Williams Percent Range on the same chart, which has dropped into oversold territory. Going long may be a wise choice for this pair going into the rest of the week.
The daily chart’s Bollinger Bands are beginning to narrow, indicating that this pair could see a price shift in the near future. Furthermore, a bearish cross on the weekly chart’s Slow Stochastic indicates that this pair could see downward movement in the coming days. This may be a good time to open short positions ahead of a possible downward breach.
Long term technical indicators are providing mixed signals for this pair. While the daily chart’s Williams Percent Range is in oversold territory, meaning that upward movement could occur, the weekly chart’s MACD/OsMA has formed a bearish cross. Taking a wait and see approach may be the wise choice for this pair.
A bearish cross on the daily chart’s Slow Stochastic indicates that this pair could see downward movement in the near future. This theory is supported by the Williams Percent Range on the weekly chart, which has just crossed over into overbought territory. Going short may be the wise choice for this pair.
The Wild Card
The Williams Percent Range on the daily chart has dropped into oversold territory, indicating that this pair may see an upward correction. Additionally, the Relative Strength Index (RSI) on the same chart is very close to dropping below the 30 level. Forex traders will want to monitor the RSI. If it drops any further, it may be a good time to open long positions.
Written by Forexyard.com