Speculation Regarding ECB Action Sends EUR Higher

Speculations among investors regarding possible future action to lower borrowing costs in Spain and Italy yesterday caused the euro to spike against several of its main currency rivals. Today, traders will want to pay attention to several news events out of the US that could potentially lead to market volatility. At 14:00 GMT, the Existing Home Sales figure could help the recover some of yesterday’s losses if it comes in above the forecasted 4.52M. That being said, and gains the greenback makes could be limited if the Fed hints at a new round of quantitative easing when the FOMC Meeting Minutes are released at 18:00 GMT.

Forex Market Trends

Daily Trend up up down down down no
Weekly Trend up up down down up up
Resistance 1.2562 1.5886 80.32 0.9738 1.0540 0.7982
1.2515 1.5837 79.84 0.9691 1.0493 0.7937
1.2484 1.5807 79.55 0.9663 1.0460 0.7909
Support 1.2435 1.5758 79.06 0.9616 1.0412 0.7864
1.2407 1.5729 78.77 0.9589 1.0386 0.7836
1.2353 1.5680 78.29 0.9542 1.0332 0.7790

Economic News

USD – Dollar Falls as Risk Taking Returns to the Marketplace

The US dollar took losses throughout the European session yesterday, as speculations that the ECB will soon take definitive steps to combat the euro-zone debt crisis led to risk taking in the marketplace. Against the Swiss franc, the dollar fell close to 100 pips to reach as low as 0.9627 during afternoon trading. The GBP/USD was able to reach a two-month high at 1.5777 during mid-day trading, despite a worse than expected UK Public Sector Net Borrowing Figure. A very slight downward correction later in the day brought the pair down to the 1.5770 level.

Today, the dollar will have several opportunities to recoup some of its recent losses, as a batch of potentially significant US news is set to be released. The Existing Home Sales figure, scheduled for 14:00 GMT, is expected to show improvements in the US real-estate sector. If today’s news comes in above the expected 4.52M, the dollar could see gains against the yen during mid-day trading.

At 18:00, the latest FOMC Meeting Minutes will be released. While some analysts are forecasting the meeting minutes to hint at a new round of quantitative easing, others are more skeptical given recent positive US news. If the Fed refrains from mentioning any new plans to stimulate the US economy, the dollar could see gains during evening trading.

EUR – Analysts Warn That EUR Gains Could be Temporary

The euro hit a two-week high against the US dollar and a seven-week high vs. the Japanese yen yesterday, as investors became increasingly convinced that the ECB will soon move in to lower borrowing costs in Spain and Italy. The EUR/USD shot up more than 100 pips during European trading, eventually reaching above the 1.2470 level. Against the yen, the euro advanced 107 pips to trade as high as 99.03 during the afternoon session.

Today, traders will want to note that some analysts are viewing the euro’s recent gains as temporary, given the lack of positive economic news coming out of the euro-zone. Today, traders will want to pay attention to a batch of US news set to be released during afternoon trading. Any better than expected results could cause the euro to reverse some of its recent gains. In addition, tomorrow is likely to be a volatile day for the common-currency, as manufacturing and service data from the euro-zone, France and Germany are scheduled to be announced.

Gold – Gold Reaches 2 ½ Month High

The price of gold reached as high as $1641.09 during European trading yesterday, a 2 ½ month high. Overall, the precious metal was up close to $20 an ounce during European trading, largely due to an increase in risk taking amid speculations that the ECB will soon take steps to lower borrowing costs in Spain and Italy.

Turning to today, gold traders will want to continue monitoring announcements out of the euro-zone. With several of the wealthier countries in the region voicing opposition to the ECB’s plan to combat the euro-zone debt crisis, analysts are warning that investors could quickly abandon higher-yielding assets, like gold, if it appears that the economic situation could deteriorate further.

Crude Oil – US Oil Inventories Could Keep Crude Bullish

Crude oil was able to take advantage of risk taking in the marketplace yesterday to gain more than $1 a barrel during European trading. The commodity rose as high as $97.81 yesterday, its highest level since the beginning of May, as a result of investor speculations regarding possible ECB actions and supply side fears due to conflicts in the Middle East.

Today, oil traders will want to pay attention to the US Crude Oil Inventories figure, set to be released at 14:30 GMT. Last week, the price of oil saw significant gains after the news came in below expectations, which led to assumptions that demand for oil in the US has gone up. If today’s figure once again comes in below the forecasted level, oil could extend its upward momentum.

Technical News

The Bollinger Bands on the weekly chart are beginning to narrow, signaling that this pair could see a price shift in the coming days. A bullish cross on the same chart’s MACD/OsMA indicates that the price shift could be upward. Going long may be the wise strategy for this pair.
The Williams Percent Range on the weekly chart is approaching the overbought zone, indicating that this pair could see downward movement in the near future. This theory is supported by the Slow Stochastic on the daily chart, which has formed a bearish cross. Opening short positions may be the wise choice.
The weekly chart’s Bollinger Bands have begun to narrow, indicating that this pair could see a price shift this week. Furthermore, the Slow Stochastic on the daily chart has formed a bearish cross while the Williams Percent Range on the same chart is in overbought territory. Going short may be a wise choice for this pair.
While the weekly chart’s MACD/OsMA has formed a bearish cross, most other long-term technical indicators show this pair range trading. Traders may want to take a wait and see approach, as a clearer picture is likely to present itself in the coming days.

The Wild Card

Nikkei 225
The Relative Strength Index on the daily chart is approaching overbought territory, indicating that downward movement could occur in the near future. Furthermore, the Slow Stochastic has formed a bearish cross. This may be a good time for forex traders to open short positions.

Written by Forexyard.com