The euro shot up to an eight-week high against the US dollar on Friday, following a speech from Fed Chairman Bernanke in which he hinted that new steps will soon be taken to boost the US economic recovery. This week, market volatility is almost guaranteed, as a batch of significant news is set to be released out of the US and euro-zone. Particular attention should be given to Thursday’s ECB Press Conference, followed by the US Non-Farm Payrolls on Friday. In addition, a speech from ECB President Draghi today and the US ISM Manufacturing PMI on Tuesday both have the potential to generate activity in the marketplace.
Forex Market Trends
USD – Bernanke Speech Results in Dollar Tumbling
The US dollar fell against most of its main currency rivals on Friday, following a speech from Fed Chairman Bernanke in which he restated that the Fed may soon take steps to boost the US economic recovery. The news resulted in risk taking among investors, which led to the safe-haven dollar turning bearish. Against the CAD, the greenback fell more than 70 pips for the day to reach as low as 0.9850 before staging a slight upward correction to finish the week at 0.9861. The USD/JPY hit a two-week low at 78.18 before bouncing back to 78.36 when markets closed for the weekend.
Turning to this week, the main piece of news is likely to be the US Non-Farm Payrolls figure, set to be released on Friday. The employment statistic is long considered the most important event on the forex calendar, and consistently leads to market volatility. This week, the indicator may take on added significance due to questions about whether the Fed will initiate a new round of quantitative easing this month. If Friday’s news comes in above the expected level, it may make the Fed less likely to take steps to boost the US economic recovery, which could lead to dollar gains.
EUR – ECB Press Conference Set to Generate Euro Volatility
Risk taking in the marketplace following a speech from US Fed Chairman Bernanke on Friday, resulted in major gains for the euro. Against the US dollar, the common-currency shot up more than 130 pips to reach an eight-week high at 1.2636. A slight downward correction brought the euro to 1.2573 when markets closed for the weekend. The EUR/JPY was up close to 100 pips in the first half of the day, reaching as high as 99.01, before correcting itself during afternoon trading. The pair closed the week out at 98.52.
This week, investors will be paying close attention to the euro-zone Minimum Bid Rate and ECB Press Conference, set to take place on Thursday. Speculations that the ECB will unveil new steps to lower Spanish and Italian borrowing costs on Thursday have boosted the euro in recent weeks. If a plan to combat the euro-zone debt crisis is finally revealed this week, the euro could see significant gains as a result. That being said, if investors are disappointed with the ECB’s plan, the common-currency could see bearish movement.
Gold – Gold Hits 5-Month High
Gold shot up to its highest level since April on Friday, as risk taking returned to the marketplace amid hopes that the Fed is getting ready to initiate a new round of quantitative easing. The precious metal advanced more than $34 an ounce following a speech from Fed Chairman Bernanke, to reach $1691.42 before markets closed for the weekend.
This week, whether or not gold continues its upward trend is likely to be dependent on Thursday’s ECB Press Conference. If a plan to combat the euro-zone debt crisis is finally announced, risk taking in the marketplace could send the precious metal higher.
Crude Oil – Crude Oil Rallies Following Bernanke Speech
The price of crude oil shot up close to $2 a barrel on Friday, as hopes that Fed will soon take steps to boost the US economic recovery were boosted following a speech from Fed Chairman Bernanke. Typically, any talk of plans to strengthen the US economy turns the price of oil bullish. The commodity closed out the week at $96.50, up from $94.48 at the beginning of the day.
This week, oil traders will want to continue monitoring announcements out of the US for clues as to what any steps the Fed may take will contain. In addition, the US Non-Farm Payrolls on Friday is guaranteed to generate volatility for oil Any better than expected news could signal to investors that demand in the US will go up, which may lead to additional gains for crude.
The Bollinger Bands on the weekly chart are beginning to narrow, signaling a possible price shift in the coming days. Furthermore, the Williams Percent Range on the same chart is approaching the overbought zone, indicating that the price shift could be downward. Opening short positions may be the wise choice for this pair.
Most technical indicators on the daily and weekly charts show this pair range trading, making it difficult to make a long-term prediction. Traders may want to take a wait and see approach, as a clearer trend is likely to present itself in the near future.
The daily chart’s Slow Stochastic appears close to forming a bearish cross, indicating that an upward correction could occur in the near future. Furthermore, the Williams Percent Range on the weekly chart has dropped into oversold territory. Opening long positions may be the right move for this pair.
Long-term technical indicators are providing mixed signals for this pair. On the one hand, the MACD/OsMA on the weekly chart has formed a bearish cross, meaning that downward movement could occur. On the other hand, the same chart’s Williams Percent Range has fallen into oversold territory. Taking a wait and see approach may be the best choice for this pair.
The Wild Card
The daily chart’s Relative Strength Index has fallen into oversold territory, indicating that an upward correction could occur in the near future. Additionally, a bullish cross on the same chart’s Slow Stochastic is providing another signal that upward movement could occur. Forex traders may want to open long positions for this pair.
Written by Forexyard.com