EUR Tumbles on Russian Banks Restructuring European Loans

The EUR fell sharply in late-day trading after it was reported that Russian banks may seek to restructure over $400 billion loans. This adds to the already fragile European banking system and highlights the considerable tension that still exists in the financial markets.

Economic News

USD – USD Regroups after Negative News for Euro Banks

The Dollar initially lost ground yesterday but recovered in late trading as forex markets shrugged off a delay to the much anticipated U.S. bank bailout announcement. Despite the postponement, riskier currencies gained favor and currencies such as the USD and JPY fell as traders’ risk appetite increased.

The U.S. bank bailout package is expected to provide added stability to the global economy, restore confidence to shaky financial markets, and has the potential to boost U.S. economic growth. This is providing traders with new reasons to take on riskier positions. This type of trading weighed on the Dollar yesterday but the currency later recovered as the EUR/USD finished the day down at 1.2821.

The bank bailout announcement was delayed as officials in the Obama administration focused on details that could potentially hold up the approval of the $819 billion economic stimulus package in the U.S. Senate. Both bailout packages are being highly anticipated and it is yet unknown what impact they will have on the financial markets. Traders are advised to follow tomorrow’s announcement by Treasury Secretary Geithner as he outlines the bank bailout plan. This key event may help decide the day’s direction for the EUR/USD.

EUR – EUR Plunges on Russian Loan Restructuring

The EUR fell sharply in late day trading after it was reported that Russian banks may seek to restructure over $400 billion loans from foreign banks. The 16-nation currency also came under pressure after European finance ministers suggested it may be more difficult for European banks to borrow in the financial markets.

These two events drove the EUR lower across the board. The EUR/GBP finished the day down sharply at 0.8646 from 0.8771, and the EUR/JPY was also sent lower to the level of 117.17.

The EUR had built on its gains made since Friday and continued to rally through most of yesterday’s trading as the new week began with more support for riskier currencies. Last week saw U.S. Non-Farm Payrolls post a higher than expected job loss numbers and this in turn helped to appreciate the EUR against the Dollar. However, these gains were quickly erased late last night amid the Russian banking news.

JPY – Traders May Look for Further Weakening in the JPY

The JPY gained against its currency pairs on news that Russian banks may seek to restructure loans to their European counterparts. This puts more pressure on the already struggling European banking sector. Japan is not without its own banking troubles considering Japan’s largest investment bank and brokerage, Nomura, will seek new capital upwards of $3 billion. The investment firm is struggling to absorb its acquisition of Lehman Brother’s Asian operations.

Yesterday the USD/JPY finished down at 91.36 while the GBP was at 135.51 Yen from 135.09.

Traders may be looking for further weakening in the JPY, specifically after U.S. Treasury Secretary Geithner’s speech at 16:00 GMT. His outline of the U.S. banking system bailout may help reduce market risk. This could allow traders to dump their safe haven JPY positions for riskier currencies, depreciating the Japanese currency. Look for the USD/JPY to finish the day at the 92.00 mark.

Oil – Oil Settles below $40 Ahead of Inventory Data

The price of Crude Oil settled below the $40 mark yesterday as traders await Crude Oil inventory data due Wednesday. Many have predicated a rise in the price as the U.S. economic stimulus package inches closer to Congressional approval; however, the commodity has been range trading between $39-43 for the past 10 days, unable to find solid support.

Yesterday’s closing price of $39.83 was still within this range. This is more than $100 off Crude Oil’s peak price seen last July.

Wednesday’s Crude Oil Inventories Report, combined with the passage of the U.S. economic bailout plan, has the potential to ignite a price rally. An unexpected drop in inventories could help to push Crude Oil above the $45 resistance level by week’s end.

Technical News

The hourlies show quite a wide range-trading with no specific direction; however, the daily chart’s Bollinger Bands are tightening, indicating upcoming increased volatility. A bearish cross on the 4-hour chart’s Slow Stochastic indicates an upcoming test of the 1.2800 level once again. If that level is breached, swinging in the trend would be the best strategy.
The pair’s bullish price movement continues within the bullish channel, which still has yet to be breached. The bullish cross forming on the hourly chart’s Slow Stochastic supports the upward notion as well. The RSI is floating above the 50 level pointing to the continuation of the upward movement. Next testing point might be around 1.4950.
After touching a base at 90.89, the pair now consolidates a bit higher at around the 91.46 level. All oscillators show that the bullish momentum will probably continue. The Slow Stochastic of the 4-hour chart is showing no crosses in the horizon, and the bullish momentum there appears to be intact as well. On the daily chart, this pair is still trending upwards and there are no imminent indications of a reversal. Therefore, traders can maximize profits by entering steady long positions.
The bullish momentum continues full steam ahead within the bullish channel which still has yet to be breached. The 4-hour chart is showing a strong bullish cross, and the RSI on the hourly chart also supports the continuation of the bullish movement. Next testing point should be around 1.1780. Going long appears to be preferable today.

The Wild Card

There is a very distinct downwards channel forming on the hourly chart. A fresh bearish cross on the chart’s Slow Stochastic implies that the bearish correction is quite imminent. The RSI on the 4-hour chart is floating below 40, supporting the notion that there is still more room for the downwards correction. Forex traders can maximize profits by taking advantage of a currently bearish trend.

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