EUR/USD Hits 1-Week Low amid Poor French, Chinese Data

Risk aversion returned to the marketplace yesterday after disappointing economic indicators out of China and the euro-zone resulted in higher-yielding currencies and commodities turning bearish throughout the day. In addition to the EUR/USD, which hit a one-week low, the AUD and crude oil also saw downward movement. As markets get ready to close for the week, traders should note that a lack of significant news events today may result in a low liquidity trading environment. That being said, any talk of a euro-zone bailout of Spain, which is widely expected to occur in the near future, may lead to volatility.

Forex Market Trends

Daily Trend up up down down up up
Weekly Trend down up down up down down
Resistance 1.3108 1.6334 79.19 0.9417 1.0572 0.8103
1.3052 1.6291 78.73 0.9372 1.0524 0.8050
1.3019 1.6262 78.40 0.9340 1.0496 0.8018
Support 1.2961 1.6219 77.91 0.9293 1.0448 0.7968
1.2928 1.6190 77.61 0.9262 1.0420 0.7936
1.2872 1.6147 77.12 0.9215 1.0372 0.7886

Economic News

USD – Dollar Benefits from Risk Aversion

The US dollar was able to take advantage of risk aversion in the marketplace following a series of disappointing indicators out of China and the euro-zone, which led to gains against several of its main currency rivals. The AUD/USD tumbled close to 100 pips during Asian trading, eventually reaching as low as 1.0366. Despite a slight upward correction later in the day, the pair was once again bearish by the evening session. Against the Swiss franc, the greenback gained more than 90 pips during the first half of the day, and by the end of the European session was trading at the 0.9350 level.

Turning to today, traders will want to pay attention to announcements out of the euro-zone, particularly with regards to the current situation in Spain. It is widely expected that the Spanish government will soon request a bailout from the ECB. Any signs today that the request may come soon could lead to significant volatility before markets close for the weekend. If the situation in Spain turns out to be worse than originally thought, the dollar could extend its upward trend vs. its riskier currency rivals.

EUR – Disappointing French News Turns EUR Bearish

The euro fell against most of its main currency rivals yesterday, after several worse than expected French economic indicators led to risk aversion in the marketplace. In addition, a disappointing Chinese manufacturing figure led to fears regarding the pace of the global economic recovery. Against the US dollar, the euro slipped more than 80 pips during European trading to reach as low as 1.2917, a one-week low. Meanwhile, the EUR/JPY dropped some 78 pips to trade as low as 100.92, its lowest level since last Friday.

As markets get ready to close for the week, traders will want to pay attention to announcements out of Spain regarding its debt issues and whether the Spanish government will seek a bailout package. Despite the fact that a bond auction yesterday signaled increased demand for Spanish debt, most investors remain convinced that a bailout request is likely to happen in the near future. Any signs that the situation in Spain is worse than previously thought could result in the euro extending yesterday’s losses.

Gold – Gold Turns Bearish after Disappointing Global News

Gold spent most of yesterday’s trading session in a bearish trend, as a series of disappointing economic indicators out of China and the euro-zone weakened demand for commodities and precious metals. The price of gold fell by more than $15 an ounce over the course of the day, eventually reaching as low as $1755.60 before staging a mild upward correction during the afternoon session.

Today, gold traders will want to pay attention to the EUR/USD. If the euro continues to fall against the greenback, gold may extend yesterday’s bearish trend. A weakened euro typically means that gold becomes more expensive for international buyers, which can lead to a drop in prices.

Crude Oil – Crude Oil Sees Minor Gains in European Trading

The price of crude oil saw minor gains during European trading yesterday, following its drop to a six-week low during the Asian session. After reaching as low as $90.94 during early morning trading, crude was able to stage a brief recovery which brought it above the $92 a barrel level by the afternoon.

Today, crude traders will want to note that if risk aversion continues to dominate market sentiment, the price of crude may extend yesterday’s losses. Attention should be given to higher yielding currencies, including the EUR and AUD. If they see additional bearish movement today, so might oil.

Technical News

The Slow Stochastic on the weekly chart appears close to forming a bearish cross, signaling that a downward correction could occur in the coming days. This theory is supported by the daily chart’s Williams Percent Range and Relative Strength Index, both of which have crossed into overbought territory. Going short may be the best choice for this pair.
The daily chart’s Relative Strength Index is currently in overbought territory, indicating that this pair could see downward movement in the near future. This theory is supported by the Slow Stochastic on the weekly chart which has formed a bearish cross. Opening short positions may be the preferred strategy today.
The Bollinger Bands on the weekly chart are narrowing, indicating that this pair could see a price shift in the coming days. That being said, most other long-term technical indicators are currently range trading, making the direction of the price shift difficult to predict. Taking a wait and see approach for this pair may be the best choice.
The Slow Stochastic on the daily chart appears close to forming a bullish cross, signaling that this pair could see upward movement in the near future. Furthermore, the Relative Strength Index on the same chart has dropped below the 30 level. Traders may want to open long positions for this pair.

The Wild Card

A bullish cross on the daily chart’s Slow Stochastic indicates that this pair could see upward movement in the near future. This theory is supported by the Williams Percent Range, which has crossed into oversold territory. Going long may be the smart choice for forex traders today.

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