Higher-yielding assets took moderate losses to start off the week yesterday, as investor fears regarding the pace of the global economic recovery outweighed positive US employment data from last Friday. Specifically, the Spanish debt crisis and concerns about an economic slowdown in China led to a shift back to safe-haven currencies. Today, a lack of significant news out of the US means that traders will want to continue monitoring announcements out of the euro-zone to determine the level of risk appetite in the marketplace. Any positive news could help the euro recover some of yesterday’s losses.
Forex Market Trends
USD – Risk Aversion Boosts USD
The US dollar recovered some of its losses from last week during yesterday’s trading session, as investors shifted their funds to safe-haven currencies amid fears regarding the global economic recovery. The USD/CHF was able to gain more than 60 pips over the course of the day before peaking at 0.9356 during mid-day trading. By the end of the European session, the pair was at 0.9335. The GBP/USD fell more than 80 pips throughout the day, eventually reaching as low as 1.6020.
Turning to today, a lack of significant US news means that traders will want to pay attention to announcements out of the euro-zone to gauge risk appetite in the marketplace. Any signs that Spain is getting ready to request a bailout from the ECB could lead to risk taking, which may weigh down on the greenback. Later in the week, traders will not want to forget to pay attention to the US trade balance, unemployment claims, PPI and Prelim UoM Consumer Sentiment figures, as they all have the potential to create serious volatility for the dollar.
EUR – Spanish News Continues to Drive Euro Movements
Fears regarding Spanish and Greek debt, combined with a slowing down of China’s economy caused the euro to take losses during trading yesterday. The EUR/USD tumbled close to 100 pips during overnight and morning trading, eventually reaching as low as 1.2936. A slight upward correction later in the day brought the common currency to 1.2970. Against the Japanese yen, the euro fell more than 90 pips during the first part of the day to trade as low as 101.11 before bouncing back to the 101.30 level.
Today, euro-zone news is likely going to continue being the driving force behind movements in the marketplace. In particular, any announcements regarding the euro-zone bailout fund and a possible future Spanish bailout request may cause investors to shift their funds to riskier assets. At the same time, if it appears that Spain will continue delaying its request for a euro-zone bailout to help recapitalize its banks, the euro could extend its bearish run against the dollar and yen.
Gold – Gold Continues to Fall
The price of gold extended its downward trend throughout the day yesterday, as a strengthened US dollar resulted in reduced demand for the precious metal. Prices fell by close to $14 when markets opened for the week, eventually reaching as low as $1766.34, before bouncing back to the $1775 level toward the end of European trading.
Today, analysts are warning that the price of gold could continue falling if fears regarding the euro-zone and Chinese economies continue to boost the safe-haven dollar. A strong dollar often leads to reduced prices for gold, as it becomes more expensive for international buyers. Any negative announcements out of Europe today may result in gold taking further losses.
Crude Oil – Euro-Zone Fears Weigh Down on Oil
Euro-zone growth fears combined with slightly reduced tensions between Iran and western nations caused the price of oil to extend its recent downward trend when markets opened for the week. The commodity fell close to $1.50 during the Asian session to trade as low as $88.19. That being said, crude was able to recover some of its losses during the afternoon session, and eventually bounced back to the $89.60 level.
Turning to today, crude traders will want to continue monitoring how euro-zone news is affecting the US dollar. The greenback saw steady gains when markets opened for the week, which in turn made oil more expensive for international buyers. Should the dollar continue its bullish trend today, oil could once again start moving downward.
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 indicates that this pair could see an upward correction in the near future. Furthermore, the Williams Percent Range and Relative Strength Index on the same chart are close to the oversold zone. This may be a good time for forex traders to open long positions for this pair.
Written by Forexyard.com