The euro shot up to a fresh four-month high against the US dollar yesterday, following a German constitutional court ruling that supported the ECB’s plans to combat the euro-zone debt crisis. The court ruling also resulted in other higher-yielding assets extending their bullish trends throughout the day. Today, the main piece of news is likely to be FOMC Statement, scheduled for 16:30 GMT. Speculations that the Fed will initiate a new round of quantitative easing have kept the dollar bearish recently. If the Fed does announce a new round of quantitative easing today, the greenback could see additional losses in afternoon trading.
Forex Market Trends
USD – FOMC Statement Could Lead to More Dollar Losses
The US dollar saw minor upward movement against several of its main currency rivals yesterday, but remained bearish overall amid speculations that the Fed will announce new steps to boost the US economic recovery today. The USD/CHF gained close to 40 pips during mid-day trading to reach as high as 0.9378, just above a four-month low hit earlier in the week. Against the Japanese yen, the dollar advanced more than 20 pips to trade as high as 77.95, just above a recent three-month low.
Today, traders will want to pay careful attention to the FOMC Statement, set to be release at 16:30 GMT. US economic indicators have largely come in below their forecasted levels in recent weeks, leading to an increase in speculations that the Fed will need to take steps to boost the US economy. With a number of analysts predicting that the Fed will announce those steps today, traders can anticipate heavy market volatility during the afternoon session. Should the Fed announce a new round of quantitative easing, the dollar could extend its recent losses.
EUR – Euro Turns Bullish amid Risk Taking
A German constitutional court ruling in favor of the ECB’s plans to lower borrowing costs in the euro-zone led to risk taking among investors yesterday, and resulted in significant gains for the euro. The EUR/USD advanced more than 70 pips during the first half of the day to reach 1.2934, a fresh four-month high. The EUR/AUD also shot up more than 70 pips to trade as high as 1.2336 during the afternoon session.
Today, euro traders will want to pay attention to a batch of US news, specifically the FOMC Statement and Economic Projections. If the Fed announces new steps to stimulate growth in the US economy, investors may continue shifting their funds to riskier assets, which could lead to additional euro gains. That being said, if the Fed decides not to take any new steps today, the common-currency could reverse some of its recent bullish movement.
Gold – Gold Comes Off 6-Month High
After risk taking in the marketplace drove the price of gold to a fresh six-month high in early morning trading, the precious metal proceeded to correct itself during the mid-day session yesterday. Gold fell from a high of $1746.86 an ounce to the $1725 level by the afternoon. That being said, analysts were quick to say that the downward correction may just be temporary, and that the overall trend is still bullish.
Today, gold may be able to recoup some of yesterday’s losses if the US dollar extends its recent bearish trend after the FOMC Statement at 16:30 GMT. A weakened dollar makes gold cheaper for international buyers, which typically results in the precious metal gaining in value.
Crude Oil – US Inventories Figure Turns Crude Bearish
A significantly higher than expected US Crude Oil Inventories figure yesterday signaled to investors that demand in the world’s leading oil consuming country may go down, and resulted in the price of crude turning bearish during afternoon trading. Overall, the price of oil fell by more than $1 a barrel throughout European trading to eventually reach the $96.31 level. A slight upward correction brought the commodity to the $97 level by the afternoon session.
Today, oil may be able to reverse yesterday’s bearish trend after the FOMC Statement at 16:30 GMT. Any announcements regarding a new round of quantitative easing may lead investors to speculate that demand in the US could go up, which could lead to crude turning bullish during afternoon trading.
The Bollinger Bands on the weekly chart are narrowing, signaling that this pair could see a price shift in the near future. Furthermore, the Williams Percent Range on the same chart has crossed over into overbought territory, while the Slow Stochastic on the daily chart has formed a bearish cross. Going short may be the wise choice for this pair.
The daily chart’s Relative Strength Index has drifted into overbought territory, signaling that a downward correction could occur in the near future. This theory is supported by the Williams Percent Range on the weekly chart, which is currently at the -10 level. Opening short positions may be the smart move for this pair.
A bullish cross appears to be forming on the daily chart’s Slow Stochastic, indicating that an upward correction could occur in the near future. Additionally, the weekly chart’s Williams Percent Range has crossed into the oversold region. Traders may want to open long positions for this pair.
The Relative Strength Index on the daily chart is currently in oversold territory, indicating that an upward correction could occur in the near future. Furthermore, the Slow Stochastic on the same chart has formed a bullish cross. Opening long positions may be the smart choice for this pair.
The Wild Card
The MACD/OsMA on the daily chart has formed a bearish cross, signaling that this pair could see a downward correction in the near future. Additionally, the Williams Percent Range on the same chart has crossed into overbought territory. This may be a good time for forex traders to open short positions, as a bearish correction could take place.
Written by Forexyard.com