Euro Tumbles Following Spanish Bank Takeover

The Euro fell broadly throughout the night following news that the Spanish government is planning to takeover a smaller savings bank due to a failed merger attempt. The EUR/USD, currently trading below the 1.2300 level, has fallen more than 100 pips since yesterday evening as one of the results.

Economic News

USD – Dollar Receives Boost Following Existing Home Sales Report

While last week saw the U.S Dollar drop against many of the other major currencies, the greenback appeared to be coming back strong after a solid housing report helped boost investor confidence. Monday’s Existing Home Sales report led to major gains for the Dollar against its primary counterparts.

The report, which came in well above expectations, revealed that home sales increased for the second straight month. As a result, the greenback shot up versus the British Pound and Australian Dollar, to name a few. The GBP/USD dropped over 100 pips since yesterday afternoon and is currently trading around the 1.4360 level. The AUD/USD fell even more broadly, dropping from 0.8320 to its current level of 0.8200.

Today, traders will want to look out for the CB Consumer Confidence report set to be released at 14:00 GMT. U.S consumer confidence has steadily increased over the last several months. This month should be no different as analysts are forecasting a figure of around 59.1 compared to April’s 57.9.

The Dollar may be able to prolong its rally in the marketplace should the report come in as predicted. At the same time, consumer confidence has been notoriously hard to predict in the past. Any result below 59.1 could lead to gains for European currencies like the Sterling and Franc.

EUR – EUR/USD Dives Due to Renewed Deficit Worries

Fears that the deficit worries that have plagued Greece over the last few months may be spreading, caused the Euro to slide throughout the night. News that the Spanish government is taking over one of its smaller savings banks following a failed merger attempt underscores just how fragile the Euro-Zone economies really are.

Investors reacted to the Spanish news by getting rid of their Euro positions, causing the currency to take major losses against the U.S Dollar, among others. The EUR/USD has dropped over 100 pips since yesterday as a result. Similarly, the EUR/JPY fell from 112.34 last night, to its current level of 110.90.

Today, several economic indicators, such as the monthly Italian Retail Sales report and the European Industrial New Orders report, may slightly impact the single currency. At the same time, traders will want to keep in mind how weak the Euro-Zone is at the moment. Expect the Euro to continue to fall against its main rivals, especially if today’s U.S Consumer Confidence report is released in-line with or above expectations.

JPY – Risk Aversion Leads to Gains for the Yen

The Japanese Yen, capitalizing on the high level of risk aversion in the marketplace, has been able to record gains on most of its major currency rivals. With continuous coverage of deficit worries in the Euro-Zone economies dominating the news cycle, investors are flocking to the safe haven currencies like the Dollar and Yen. The GBP/JPY, which yesterday was trading as high as 130.71, has fallen to its current level of 129.45. The AUD/JPY has also seen a drastic drop since yesterday, from 75.37 to its current level of 74.04.

Traders may want to consider the Yen as a safe bet today, especially if negative European news continues to dominate the headlines. At the same time, should the U.S. Consumer Confidence report come in as expected, the Dollar may be able to make some gains on the Yen. The USD/JPY has been trading in a somewhat level area over the last day or so. That may all change following the release of the Consumer Confidence reading.

Crude Oil – Euro-Zone News Drops Crude below $70 a Barrel

Investor fears regarding the latest European financial news translated into a sharp drop in value for crude oil. Crude, which just yesterday was trading around the $70.75 price level, has since dropped to around $69.50. As the U.S Dollar has increased over the last 24 hours, oil prices have fallen. In addition, most analysts are forecasting an increase in U.S crude supplies this week.

While the actual figure will not be released until tomorrow, speculation of a decrease in demand for the world’s largest energy consumer has further weighed down the commodity.

For today, should the Euro continue to drop, traders may want to operate under the assumption that crude prices may continue to fall as well. At the same time, any unexpected bad news to come out of the U.S could lead to a cheaper price for oil and thus higher demand.

Technical News

It appears as if the EUR/USD is preparing for an upward correction today. The RSI on both the hourly and 4-hour charts show the price floating in the over-sold territory, suggesting upward pressure. Meanwhile, the 4-hour Stochastic (slow) has just completed a bullish cross, indicating we should see an upward movement throughout the afternoon’s trading session.
The technical indicators on this pair don’t seem to be showing much in the way of direction, but we can see a clear trend across many of them. Even without clear signals, it is nevertheless obvious that all indicators are pointing in an upward direction on the longer-term charts. Momentum for this pair appears to be turning bullish. The price has been consolidating since yesterday; once this trend is completed we may see some upward movement.
After trading flat for a few days, this pair is beginning to show signs of directionality. The 4-hour Stochastic (slow) has turned sharply downward suggesting that we may see a bullish cross later today. The RSI on the daily chart has also just entered the over-sold territory, highlighting a growing level of upward pressure. Waiting for the upward swing and then going long on this pair may not be a bad move today.
This pair’s sustained bullishness has resulted in the expected technical indications for a correction. The RSI on the hourly, 4-hour and daily charts are all floating in the over-bought territory, pointing to strong downward pressure. The Stochastic (slow) on the 4-hour and daily charts also show bearish crosses. The 1.1600 price level represents a significant historical barrier on this pair. A level of downward corrective behavior should be impending and traders will want to keep an eye out for this and try to call the reversal when it happens.

The Wild Card

This pair’s drastic downturn over the last two weeks has surprised many. However, we do see many technical signals indicating some positive news for the Aussie. The RSI on the daily chart is showing the price deep within the over-sold territory, while the Stochastic (slow) on the same chart recently finished a bullish cross and is now pointing upward. The weekly RSI has also just entered the over-sold zone, suggesting that this week may be the turning point for this pair. Forex traders won’t want to miss out on a great opportunity to call the reversal and make maximum gains with the Aussie Dollar.

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