Stormy Weather Hits Forex Markets

An extremely volatile day ended yesterday with the U.S. dollar gaining against most major currencies. The EUR/USD pair hit a one-year low not seen since April 2009, and traded below 1.3200.

Volatility is expected to continue today, while European Union or Government representatives would probably try to reassure investors regarding the stability of the EUR and an aid support to Greece. Some trades will close their short positions to close profits. This should support the EUR, which is already trading higher at Wednesday trade opening.

Economic News

USD – U.S. Consumer Confidence Came High, Markets Ended Low

Yesterday’s trading session proved once again that markets are still fragile. Better than expected Consumer Confidence data did not improve investors’ mood, regarding recovery in the global economy. The Case Shiller index added to the negative sentiment, published Tuesday, it showed an increase in home prices, but worse than forecasted.

The greenback rose sharply against all its major counterparts. EUR/USD is currently trading at 1.3200 almost 200pips down compared to Tuesday opening. GBP/USD is trading at 1.5268, also around 200pips down compared to Tuesday open session.

Today’s trade will continue to be influenced by the ranking downgrades, some currencies, hit yesterday, might rebound slightly while short positions are closed to take on profits. Yet, European debts sentiment would continue to halt any major EUR up trend, it seems that only a serious aid packed would help lift the EUR. Today’s FOMC statement and Federal funds rate decision, expected to remain at 0.25%, would win traders attention, while they would try to learn about changes of rate in the near future.

EUR – Greece & Portugal Downgrade Sent EUR to New Year Low

EUR tumbled yesterday when the S&P group published their ranking downgrade to Greece and Portugal. Greece payment is due on May 19, Germany’s reassured that EUR will not collapse because of Greece, but on the other hand they continued to raise difficulties over a complete aid package to Greece

UK election coming in less than two weeks may add some volatility to the pair, investors fear from a weak government with limited power to take important economic decision in order to direct the UK economy out of recession.

The EUR/USD was trading lower following the closing of the New York session when the pair opened slightly higher at around 1.3200. The EUR/USD is expected to test the 1.3200 level later today, any failure to cross it would signal further decline for the pair. The GBP/USD also improved since yesterday closing and is currently little change at 1.5268.

JPY – Yen Rises as Investors Divert Away from Risk

The Japanese Yen traded higher during Tuesday’s session, as investors return to safe heaven currencies such as the USD and the JPY.

As long as issues, such as Europe debts, continue to occupy investors the trend would continue to support the JPY against the EUR and against the GBP. The JPY might be less bullish against the USD, however during yesterday’s session the JPY was higher against the USD. The pair is currently trading at 93.33. Retails Sales in Japan published earlier signaled strong growth. These were good news for

Japan economy trying to escape deflation.The Japanese Yen today, will continue to be influenced by trades lack of appetite to risk as no major news will be published today. Tomorrow, Thursday, is bank holiday in Japan.
The Yen is expected to trade neutral during the day. If investors see more ranking warning they may continue to support the Yen against other major currencies. EUR/JPY currently trading at 123.29, and USD/JPY improved since day started to 93.30.

OIL – Crude Oil Prices Rise as Recovery Concerns Take Over

The S&P group, rating downgrade, took over Tuesday’s trading session sending riskier assets lower including Crude Oil prices to below $83, a strong support level. Barrel of Oil opened at $82.30, higher compared to yesterday’s price during New York closing.

Oil prices declined mainly on concerns about the strength of the economic recovery. Investors are extremely worried about European countries mounting debts. Moreover a U.S. barometer of oil inventories showed a larger than expected increase, which sent Oil prices further down.

Better statistics on Oil inventories is due to be published later today. However in recent weeks, oil price was little changed following this figure, probably because investors realized that China’s and India’s economies have larger influence on oil demand then U.S. citizens, due to a growing middle class population. Oil is expected to continue its decline today, although on a more moderate level, $83 a barrel will turn to be a resistance level.

Technical News

There is a fresh bearish cross forming on the hourly chart’s Slow Stochastic indicating a bearish correction might take place in the nearest future. The downward direction on the 4-hour chart’s Momentum oscillator also supports this notion. When the downward breach occurs, going short with tight stops appears to be preferable strategy.
The price appears to have entered the over-sold territory on the 4-hour RSI, but it still points downward, indicating that the downward movement may not have finished just yet. The bearish cross on the 4-hour MACD supports this notion. Staying short on this pair for the time being may not be a bad tactic today
The 4-hour chart’s is showing that the pair is still in the bearish configuration. However, the RSI is already floating in the oversold territory indicating that a bullish correction might take place in the nearest future. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.
The bullish trend is loosing its steam and the pair seems to consolidate around the 1.0850 level. The pair currently sits near the upper border of the daily chart’s RSI, suggesting a downward correction may be imminent. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.

The Wild Card

This pair has been in a steady bullish channel for a number of days now with hardly any signs of stopping. However, the daily and hourly charts show the price floating in the over-bought territory of their respective RSIs. A bearish cross on the daily Slow Stochastic has also just formed, indicating that this pair is due for a strong downward movement giving forex traders a great opportunity to call the reversal and ride out the downward wave for some hefty profits.

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