The US dollar fell against several of its main currency rivals yesterday, following a worse than expected American manufacturing indicator which led to increased speculations that the Fed will soon take action to boost the US economic recovery. Turning to today, analysts are warning that the dollar could extend its recent downward trend if investors remain convinced that both the ECB and Fed will soon take actions to boost the euro-zone and US economic recoveries. At the same time, any dollar losses could be limited ahead of Friday’s Non-Farm Payrolls figure, which is forecasted to show growth in the US employment sector.
Forex Market Trends
USD – Manufacturing PMI Leads to Dollar Losses
After steadily gaining on several of its main currency rivals during the first part of the day yesterday, the dollar began falling during afternoon trading after a worse than expected US manufacturing indicator signaled a further slowdown in the US economic recovery. The USD/JPY fell 15 pips after the indicator was released to trade as low as 78.27. Against the Swiss franc, the greenback advanced some 45 pips to reach as high as 0.9563 during morning trading, before falling to the 0.9535 level following the news release.
Turning to today, analysts are warning that given the increased speculations that the Fed could initiate a new round of quantitative easing in the coming weeks, the dollar could extend its recent bearish trend. That being said, traders will want to monitor announcements out of the euro-zone today. While it is widely expected that the ECB will soon unveil its own steps to lower borrowing costs in the region, it is not yet known exactly what those steps will be. Any signs that the new ECB initiatives will not be enough to combat the euro-zone debt crisis could lead to risk aversion and boost the dollar.
EUR – Euro Reverses Some of its Recent Gains
The euro spent much of yesterday’s trading session in a bearish trend, as uncertainties regarding the details of an ECB plan to lower borrowing costs in the euro-zone led to mild risk aversion in the marketplace. The EUR/JPY fell more than 50 pips during European trading, eventually reaching as low as 98.44 toward the end of the day. Against the US dollar, the common currency dropped more than 60 pips to trade as low as 1.2557. Disappointing US data later in the day resulted in the euro bouncing back to the 1.2575 level.
Today, a lack of significant news out of the euro-zone means that traders will want to continue monitoring announcements regarding the details of the ECB’s plans to lower borrowing costs in Spain and Italy. If the ECB fails to take any significant actions in the near future to combat the euro-zone debt crisis, risk aversion is likely to return to the marketplace which could negatively affect the euro. Later in the week, traders should not forget to pay attention to the US Non-Farm Payrolls figure. The figure is considered extremely important and could lead to heavy volatility for the euro.
Gold – Gold Range Trades Ahead of Euro-Zone News
The price of gold saw relatively little movement yesterday, as investors were hesitant to open new positions ahead of significant euro-zone news later in the week. Still, gold was able to briefly touch a five-month high at $1698.76, after a worse than expected US indicator led to an increase in demand for precious metals.
Today, analysts are predicting that gold could remain near its recent highs ahead of the euro-zone Minimum Bid Rate and ECB Press Conference on Thursday. Any indications today that the European Central Bank will finally unveil plans to lower borrowing costs in Spain and Italy could help gold maintain its bullish trend.
Crude Oil – Crude Oil Reverses Gains amid ECB Uncertainty
The price of crude oil fell by more than $1 a barrel during European trading yesterday, as uncertainty regarding potential new steps from the ECB to boost the euro-zone economic recovery led to mild risk aversion in the marketplace. The commodity traded as low as $95.78 during afternoon trading, down around $1.55 for the day.
Turning to today, oil traders will want to pay attention to announcements out of the euro-zone regarding what new initiatives the ECB could announce at a press conference on Thursday. Any indications that the steps will not be strong enough to effectively combat the euro-zone debt crisis, could lead to risk aversion and cause oil to extend yesterday’s losses.
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 Williams Percent Range on the daily chart has crossed over into overbought territory, indicating that this pair could see a downward correction in the near future. Furthermore, the Slow Stochastic on the same chart appears close to forming a bearish cross. This may be a good time for forex traders to open short positions.
Written by Forexyard.com