Investors wait for Spanish Bailout News

The anticipation of a Spanish bailout affected all major currencies and pairs yesterday. While a request for a bailout by Spain could see a short-term rally in the euro, there is some resistance to it in the medium to long term currency projections, given gloomy economic prospects, tough austerity measures and rising unemployment in the euro zone. Conversely, the unanticipated Australian rate cut caused the currency to devalue against all major pairs. Today, traders will want to pay attention to a batch of U.S news, most importantly the ADP Non-Farm Employment Change which is set to be released at 12:15 GMT.

Forex Market Trends

Daily Trend down down up up down up
Weekly Trend up down up down down up
Resistance 1.2988 1.6218 79.20 0.9482 1.0304 0.8093
1.2944 1.6171 78.74 0.9435 1.0258 0.8048
1.2916 1.6142 78.46 0.9406 1.0228 0.8020
Support 1.2873 1.6094 78.00 0.9360 1.0183 0.7976
1.2846 1.6065 77.72 0.9331 1.0150 0.7948
1.2801 1.6019 77.28 0.9284 1.0101 0.7903

Economic News

USD – ADP Non-Farm figure Set to Impact Dollar Today

The U.S. dollar weakened slightly against most major rival currencies yesterday due to talks of a Spanish bailout. The rising EUR/USD reflected the weakening U.S. dollar when it gained 45 pips during yesterday morning’s trading. Since last week’s drop in price and this week’s market opening, the GBP/USD has seen much volatility in trading, sometimes as wide as 40 pips in an hour. After falling as low as 1.6130 during the morning session, the GBP was able to bounce back to the 1.6170 level by the end of the European session.

Today, look to the ADP Non-Farm Employment Change as a good indicator of Friday’s all-important Non-Farm Payrolls report. A better than expected result today may signal positive changes in the U.S. economy and could help the dollar in afternoon trading. In addition, the U.S. ISM Non-Manufacturing PMI, a leading indicator of economic health, also comes out today and could lead to dollar volatility.

EUR – Spain Continues to Affect the EUR

Yesterday, the euro pulled away from a recent three-week low against the dollar on growing signs that Spain is ready to seek a bailout. But uncertainty over the timing of the request is keeping investors on edge with many selling the euro at higher levels. This news helped the EUR/GBP gain some 27 pips during the first half of the day before it turned downward in the early afternoon. The EUR/JPY only saw slight gains yesterday, due to news regarding the possible Spanish bailout and little news out of Japan.

Today, in addition to the ongoing developments in Spain, euro traders will also want to pay attention to a batch of US news. Specifically, the ADP Non-Farm Employment Change has the potential to create significant market volatility. Any better than expected data could boost optimism in the US economic recovery, which may cause the euro to turn bearish against its main currency rivals, including the USD.

AUD – Australian rate cut leads to losses for the AUD

The Australian dollar fell against other major currencies yesterday, its lowest level since early September, due to the Reserve Bank of Australia interest rate cut and concerns about slowing growth in China. Analysts had thought Australia’s central bank would wait until November to lower interest rates. The AUD/USD and AUD/CAD dropped 60 pips on the news of the rate cut.

Today, AUD traders should note that any better than expected U.S. data could result in the AUD/USD slipping further. Conversely, should any of the news come in below the forecasted level, the AUD could recoup some of yesterday’s losses.

Crude Oil – U.S. Crude Oil Inventories Scheduled to be Released Today

Crude oil prices saw significant movement yesterday as hopes Spain may be nearer to asking for a bailout as well as a weaker dollar provided some support, but a lack of major macroeconomic data left the commodity seeking firmer direction. After reaching as high as $92.90 a barrel, crude oil dropped to $92.40 level by afternoon trading.

Today, traders will want to U.S. Crude Oil Inventories figure scheduled to be released at 14:30 GMT. If the figure comes in above expectations, the price of crude oil could fall during afternoon trading.

Technical News

While the Williams Percent Range on the daily chart has crossed over into oversold territory, most other long-term technical indicators place this pair in neutral territory. Traders may want to take a wait and see approach, as a clearer picture is likely to present itself in the near future.
A bearish cross has recently formed on the weekly chart’s Slow Stochastic, indicating that a downward correction could occur in the coming days. Furthermore, the Williams Percent Range on the same chart has crossed over into overbought territory. Opening short positions may be the smart choice for this pair.
In a sign that upward movement could occur in the near future, a bullish cross appears to be forming on the daily chart’s MACD/OsMA. That being said, most other technical indicators on the daily and weekly charts show this pair range trading. Taking a wait and see approach may be the smart choice.
A bullish cross has formed on the weekly chart’s Slow Stochastic, signaling that this pair could see an upward correction in the coming days. Furthermore, the Williams Percent Range on the same chart is very close to dropping into oversold territory. Traders may want to open long positions for this pair.

The Wild Card

The Relative Strength Index on the daily chart is approaching oversold territory, indicating that an upward correction could occur in the near future. Additionally, a bullish cross appears to be forming on the same chart’s MACD/OsMA. This may be a good time for forex traders to open long positions.

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