Euro-Zone Debt Concerns Push EUR to 14 month Low

Fears that the sovereign debt issues will spread to other weak economies such as Spain and Portugal as well as concerns that the bailout package will not be enough to return Greece to solvency caused the EUR to fall to its lowest level in 14 months versus the USD.

Economic News

USD – USD Gains on Negative Market Sentiment

Negative market sentiment precipitated by growing concerns that the Greek debt crisis will spread to further economies in the Euro-Zone boosted the safe heaven USD and JPY. As investors flee riskier assets such as stocks, commodities and currencies of emerging market, the USD and JPY rose for their perceived safety. The USD is currently traded at $1.2839 versus the EUR and at 93.83 Yen.

While news from the Euro-Zone will likely dominate today’s trading as well, investors should follow the release of the Unemployment Claims at 12:30 GMT, particularly in light of Friday’s release of the Non Farm Payrolls Report as well as Fed Chairman Bernanke’s testimony at 13:30 GMT for any clues on the future of monetary policy and interest rate hikes.

EUR – EUR Drops over 1% versus the USD

The EUR dropped to a 14 month low against the Dollar yesterday, reaching below 1.2800, as fears intensified over the spreading Euro-Zone debt crisis. As protests in Greece intensify, investors are concerned the €110 billion ($143 billion) aid package to Greece will not ensure solvency in Greece. Furthermore, concerns mount regarding Portugal, Spain and other weak economies in the Euro-Zone could. A warning by Moody’s that it could cut Portugal’s “Aa2” sovereign rating by as much as two notches sent the EUR to its lowest level since March 2009.

The EUR is currently trading at $1.2837 and is at 120.39 Yen. The Pound is at $1.5123, ahead of today’s general election. While the consensus still points to a hung parliament, the conservative party has been gaining ground in recent days. A decisive victory of the conservative party will likely provide support for the Pound.

Today, investors should keep pay attention to the ECB interest rate meeting and statement at 12:30 GMT. While the European Central Bank is expected to keep rates on hold, investors should focus on the meeting minutes and any comments on the spreading Euro-Zone debt issues and future direction of monetary policy.

JPY – Yen Rallies versus Counterparts

The Yen rallied Wednesday as negative sentiment pushed down equities, commodities and higher yielding currencies, with investors turning to the safe heaven status of the Japanese currency. The Yen was up 2.1% against the EUR and 0.9% against the USD.

The NZD advanced Wednesday after central bank Governor Alan Bollard hinted he may soon start to raise interest rates from a record low. New Zealand’s currency was also boosted after the release of employment data which showed the unemployment rate declined last quarter.

Today may prove to be a volatile trading day for the Yen with possible further gains versus the EUR as Japanese markets return to trading after a 3 day hiatus and as negative market sentiment persists.

OIL – Crude Price Drop blow $80 a Barrel

Crude Oil dropped below $80 a barrel as the Dollar strengthened, reducing the appeal of commodities and as U.S. inventories increased more than expected. Oil dropped 3.3% yesterday on concerns that Greece’s bailout may have to be extended to other indebted nations. Crude stockpiles rose 2.76 million barrels last week to the highest level since June, much higher than the forecasted increase of 0.6M barrels.

Light, sweet crude for June delivery settled down $2.77, or 3.5%, at $79.97 a barrel on the New York Mercantile Exchange, after plunging as low as $79.15 a barrel earlier Wednesday. Currently spot Oil is trading at $80.20 a barrel.

Technical News

The pair continues to fall without so much as a pause, breaking a key support level at 1.2880 and is approaching the 1.2750 support. The price is trading under the 200, 100, 50, 20, and 10-day simple moving averages, indicating a strong trending environment. Traders should be short on the pair with the next support level resting at the price of 1.6880.
The strong bearish trend continues with the strengthening of the dollar as the pair breached the 1.5130 support level. Currently the 14-day Relative Strength Index on the daily chart is slanting downwards, indicating the momentum is firmly towards the downside. The next support level for the pair rests at 1.5015.
The downward momentum for the pair continues after the pair broke through the 93.70 support level. Yesterday the daily chart’s 14-day Relative Strength Index moved below the 70 level, indicating a sell signal. Traders should be short on the pair with the first take profit level at the support of 92.50.
The pair has broken above the key resistance level at 1.0900 and continues to strengthen. Keeping in-line with the major pairs, the daily chart shows a positive slanting 14-day Relative Strength Index that has crossed into overbought territory. However, traders should continue to be long on the pair until the indicator turns lower and breaks below the 70 level. The next major resistance line for the pair is at 1.1425.

The Wild Card

Spot crude oil continues to decline and has fallen below the support level of $79. The MACD histogram is downward sloping, indicating that the momentum is to the downside. CFD traders may want to go short with a price target at the next major resistance level on the daily chart at $78.

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