The US dollar took losses against several of its main currency rivals on Friday, following the release of this month’s Non-Farm Payrolls report and unemployment rate. An unexpected drop in the US unemployment rate raised confidence in the American economic recovery, which in turn boosted demand for higher-yielding assets. This week, traders will want to pay attention to several key news events out of the euro-zone and US. A speech from the ECB President on Tuesday, the US trade balance report on Thursday followed by US consumer sentiment data on Friday all have the potential to create market volatility.
Forex Market Trends
USD – Dollar Sees Mixed Reaction to Unemployment Figure
An unexpected drop in the US unemployment rate led to risk taking among investors on Friday, which resulted in the safe-haven USD taking losses against its higher-yielding currency rivals. Against the Canadian dollar, the greenback fell close to 75 pips after the news was released, eventually trading as low as 0.9734 before staging an upward correction. The USD/CAD finished the week at 0.9785. The dollar had more look against its safe-haven rival the Japanese yen. The USD/JPY shot up more than 40 pips during mid-day trading, eventually reaching as high as 78.86. The pair closed out the week at 78.65.
This week, several economic indicators out of the US have the potential to create volatility for the dollar. Traders will want to pay attention to Thursday’s trade balance and unemployment claims figures, followed by Friday’s PPI and Prelim UoM Consumer Sentiment. During the first half of the week, euro-zone news, particularly with regards to the debt crisis in Spain, is likely to impact risk sentiment in the marketplace.
EUR – Risk Taking Temporarily Boosts Euro
Positive employment data out of the US led to risk taking among investors on Friday, which resulted in temporary gains for the euro. Against the US dollar, the common-currency shot up more than 70 pips during mid-day trading to hit a two-week high at 1.3070. The euro was not able to maintain its upward momentum, and by the end of the day had given up most of its gains to finish out the week at 1.3031. Against the British pound, the euro had better luck. The EUR/GBP advanced more than 40 pips over the course of the day before closing out the week at 0.8077.
This week, euro traders will want to continue monitoring news out of Spain, particularly with regards to its debt situation and a potential request for a euro-zone bailout. Analysts are warning that until a bailout request is made, the euro could have a hard time maintaining any of its recent gains. Additionally, attention should be given to a speech from ECB President Draghi, scheduled to take place on Tuesday. Any optimism in his speech regarding the euro-zone economic recovery could help the euro.
Gold – US Employment Data Turns Gold Bearish
Gold, which has often been viewed as a safe-haven in times of economic crisis, took fairly significant losses on Friday following the release of better than expected US employment data. The positive US news boosted confidence in the global economic recovery, which turned the precious metal bearish. Gold fell close to $20 an ounce during mid-day trading, eventually reaching as low as $1772.67 before bouncing back to $1780.41 when markets closed for the weekend.
This week, gold traders will want to monitor developments out of the euro-zone, particularly with regards to Spain’s debt crisis. Investors may shift their funds back to the precious metal if they see any signs that the situation in the euro-zone is worsening. Additionally, any worse than expected news out of the US may boost demand for safe-haven assets, which could turn gold bullish.
Crude Oil – Crude Oil Falls as Tensions Calm in Middle East
The price of crude oil fell by more than $2 a barrel during the first half of the day on Friday, as the threat of a military conflict over Iran’s nuclear program seems to weakened for the time being, which has led to a drop in supply side fears among investors. After trading as low as $88.96 during the mid-day session, crude was able to stage a slight upward correction before closing out the week at $89.92.
This week, crude traders will want to pay attention to news out of the US, particularly Thursday’s trade balance figure and a consumer sentiment indicator on Friday. Any better than expected news may lead to speculations that demand for oil in the US will go up, which may help the commodity reverse some of Friday’s losses.
The weekly chart’s Slow Stochastic appears close to forming a bearish cross, signaling the possibility of a downward correction in the coming days. In addition, the Williams Percent Range on the same chart has crossed into overbought territory. This may be a good time for traders to open short positions.
While the Williams Percent Range on the daily chart has dropped into oversold territory, indicating that an upward correction could occur shortly, most other long term technical indicators show this pair range trading. Traders may want to take a wait and see approach for this pair, as a clearer picture is likely to present itself in the near future.
Most long term technical indicators, including the daily chart’s Relative Strength Index which remains steady at the 60 level, show this pair range trading. With a defined trend difficult to determine at this time, traders may want to take a wait and see approach for this pair.
The daily chart’s Relative Strength Index is approaching oversold territory, while the same chart’s MACD/OsMA appears close to forming a bullish cross. Traders will want to keep an eye on both of these indicators, as they may point to a possible upward correction in the near future.
The Wild Card
A bullish cross on the daily chart’s Slow Stochastic points to a possible upward correction in the near future for this pair. Furthermore, the same chart’s Relative Strength Index has crossed into oversold territory. This may be a good time for forex traders to open long positions ahead of possible bullish movement.
Written by Forexyard.com