Confidence in Euro Continues to Drop

Traders seemed anxious in trading yesterday. Comments regarding the recent Greek $1 trillion aid package by a senior IMF member raised new doubts about the EUR. Traders are now concerned that the package came too late and that it might not be enough to bring Greece into the black. Consequently, during most of the trading day the EUR retreated against its major counterparts, while the price of Gold reached a record high.

Economic News

USD – Greenback Continues to Dominate the Market

Traders continued to divert their assets to safer currencies like the Dollar on Tuesday, following news that Chinese inflation rose at a higher then expected rate. As a result, investor concerns that China would soon raise interest rates caused the greenback to surge in afternoon trading.

As traders turned pessimistic about the global economic recovery, the Euro tanked against the Dollar. EUR/USD fell during most of the day, recovering slightly only after NY trading hours. The pair is currently trading at 1.2615, down from 1.2741 yesterday afternoon. While the Dollar was able to maintain gains against the Euro, sterling was able to capitalize on evening news that a new UK government has been formed. Consequently, GBP/USD rose throughout the day, peaking at 1.4987. The pair has since corrected itself and is currently trading at 1.4866.

Looking ahead to today’s session, traders will want to pay attention to the U.S. Trade Balance Report, scheduled to be released at 12:30 GMT. The report, which tracks the difference between imported and exported goods, is considered a leading economic indicator, and consistently leads to market volatility. With a slight decrease over last month forecasted for today, the Dollar may see some losses if investors determine that the U.S. economic recovery is not moving as quickly as originally thought.

EUR – Euro Tanks Following Renewal in Risk Aversion

EUR declined heavily against the U.S. Dollar, as investors reassessed the $1 trillion Greek aid package. Traders seemed skeptical of whether the plan would be able to achieve its main goal of stabilizing the Greek economy. Their concerns were reinforced by remarks from a senior IMF member, who said the plan may not be enough to fully revive the troubled country.

The EUR started the day higher against the U.S. Dollar, and without any negative news events, should stabilize during today’s trading day. Although the long-term outlook for the Euro is still down, the currency could see a slight upward correction following the German and French preliminary GDP reports. Should the reports show a mild gain in GDP for either country, the Euro could see some gains against its major counterparts.

JPY – Yen Continues to Maintain Safe-Haven Status

The Yen has continued to make gains on some of the more volatile currencies, boosted by continued worries regarding Greece and the other Euro-zone countries currently worried about deficits. In the last 24-hours, EUR/JPY has dropped significantly, falling from 118.20 to its current level of 116.77. Similarly, GBP/JPY fell significantly throughout the day yesterday. While the pair peaked around the 139.50 level, it has since dropped to its current level of 137.90. Today, traders can expect the Yen to largely maintain its current gains, as investor appetite for risk taking will likely remain low.

Oil – Crude Oil Prices Decline Due to Weak EUR

Crude oil prices continued to drop as risk aversion continues to be the dominant market sentiment. While prices peaked yesterday at 77.28, they have since fallen to their current level of 75.60. Investors continued doubts in the effectiveness of the Greek bailout package were largely responsible for the decrease in price of crude. Today, traders can expect prices to go down further as analysts are predicting an increase in U.S. crude supplies. Typically, an increase in inventories leads to a decrease in prices, as it is taken as an indication that demand is not particularly high.

Technical News

The pair has recorded much bearish behavior in the past several days. However, the technical data indicates that this trend may reverse anytime soon. For example, the 4-hour chart’s Stochastic Slow signals that a bullish reversal is imminent. An upward trend today is also supported by the RSI. Going long with tight stops may turn out to pay off today.
The GBP/USD cross has experienced a bearish trend for the past 3 weeks. However, it seems that this trend may be coming to an end. The RSI of the daily chart shows the pair floating in the oversold territory, indicating that an upward correction will happen anytime soon. Going long with tight stops might be a wise choice.
The pair has been range-trading for a while now, with no specific direction. The Daily chart’s Slow Stochastic providing us with mixed signals. The 4 hour charts do not provide a clear direction as well. Waiting for a clearer sign on the hourlies chart might be a good strategy today.
The Stochastic Slow on the 8-hour chart shows that a bullish cross has formed, indicating that a downward correction is likely to take place in the near future. This theory is supported by the Relative Strength Index on the hourly chart, which is currently above the upper resistance line. Traders are advised to go short with tight stops today.

The Wild Card

The Bollinger Bands on the daily chart indicates that the commodity is currently trading well into overbought territory. This theory is corroborated by the Relative Strength Index on the 8-hour chart. Forex traders are advised to go short with tight stops today, as a downward correction is likely to take place.

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