The US dollar took losses against virtually all of its main currency rivals yesterday, as concerns that US Congressional leaders will not be able to resolve a budget dispute before automatic tax increases and budget cuts take place, weighed down on the greenback. Worries over the so called “fiscal cliff” also turned commodities bearish. Today, significant news is set to be released out of both the euro-zone and US. The Spanish 10-year bond auction, US ADP Non-Farm Employment Change, US ISM Non-Manufacturing PMI and US Crude Oil Inventories are all expected to create volatility in the markets.
Forex Market Trends
USD – ADP Non-Farm Figure Set to Impact Dollar
Worries over the so called “fiscal cliff”, a series of automatic spending cuts and tax increases in the US, turned the dollar bearish against virtually all of its main currency rivals yesterday. The Australian dollar was able to advance close to 50 pips against the greenback over the course of European trading, eventually reaching as high as 1.0481, a one-week high. Against the Japanese yen, the USD fell more than 30 pips during mid-day trading to trade as low as 81.81.
Turning to today, in addition to any developments in the “fiscal cliff” talks, dollar traders will want to note several potentially significant US news events. Perhaps most importantly, the ADP Non-Farm Employment Change, widely considered a valid predictor of Friday’s all-important Non-Farm Payrolls figure, is set to generate market volatility. Should the indicator come in below the forecasted 129K, the USD could extend its losses. Attention should also be given to the ISM Non-Manufacturing PMI for clues as to the current state of the US economy.
EUR – Spanish Unemployment Data Boosts Euro
The euro saw major gains yesterday, following the release of a significantly better than expected Spanish Unemployment Change figure that boosted faith in the euro-zone economic recovery. Against the Swiss franc, the common currency gained more than 50 pips during European trading, eventually peaking at 1.2144 before dropping back to the 1.2130 level. The EUR/USD advanced more than 40 pips to trade as high as 1.3106 during the afternoon session, a six-week high.
Today, the main piece of euro-zone news is likely to be the Spanish 10-year bond auction. If the bond auction shows that Spanish borrowing costs have gone up, the euro may reverse some of yesterday’s gains during mid-day trading. Furthermore, euro traders will want to pay monitor news out of the US, particularly the ADP Non-Farm Employment Change. If the ADP figure comes in below its expected level, the euro could extend its bullish trend against the US dollar.
Gold – “Fiscal Cliff” Fears Continue to Weigh Down on Gold
The price of gold fell to its lowest level in a month yesterday, as concerns about stalled US budget talks and the impending “fiscal cliff” caused investors to go bearish on precious metals. Gold sunk below the psychologically significant $1700 a level during European trading, eventually reaching as low as $1691.05 an ounce, down approximately $16.
Today, gold traders will want to continue monitoring developments regarding the ongoing US budget negotiations. If talks between Congressional leaders remain deadlocked, the price of gold may continue falling today. That being said, should the Spanish bond auction today signal improvements in the euro-zone economic recovery, gold could reverse some of its recent losses.
Crude Oil – US Inventories Figure Set to Impact Oil Today
Fears that the US could slip back into recession next year if Congressional leaders fail to agree on a budget caused the price of crude oil to fall throughout European trading yesterday. The commodity fell by more than $1.50 a barrel during mid-day trading, eventually reaching as low as $87.54, before bouncing back to the $88.15 level later in the day.
Today, the US Crude Oil Inventories figure is likely to have the largest impact on oil prices. The figure, scheduled to be released at 15:30 GMT, is forecasted to come in at -0.4M, which if true, would be a sign of high demand for oil in the US and could result in the price of crude turning bullish during afternoon trading.
The Williams Percent Range on the weekly chart has crossed over into overbought territory, indicating that downward movement could occur in the near future. Additionally, a bearish cross has formed on the daily chart’s Slow Stochastic. Going short may be the wise choice for this pair.
The Bollinger Bands on the weekly chart are beginning to narrow, indicating that this pair could see a price shift in the near future. Furthermore, the MACD/OsMA on the same chart is close to forming a bearish cross. Opening short positions may be the wise choice for this pair.
The Slow Stochastic on the weekly chart appears to be forming a bearish cross, indicating that a downward correction could occur in the near future. Additionally, the Williams Percent Range on the same chart has crossed over into overbought territory. Opening short positions may be the wise choice for this pair.
While the Williams Percent Range on the weekly chart is in oversold territory, most other long-term technical indicators show this pair range trading. Taking a wait and see approach may be the best option here as a clearer trend is likely to present itself in the near future.
The Wild Card
The daily chart’s Bollinger Bands are narrowing, indicating that this pair could see a price shift in the near future. Furthermore, the Relative Strength Index on the same chart is approaching the overbought zone, while the MACD/OsMA has formed a bearish cross. Opening short positions may be the best choice for forex traders today.
Written by Forexyard.com