Ireland Downgrade Shakes Forex Markets

A downgrade of Ireland’s sovereign debt rating late Tuesday further roiled foreign exchange markets already agitated by dismal U.S. housing sales. The Standard & Poor’s Ratings Services downgraded Ireland’s credit rating late Tuesday on concerns about the cost of bailing out the country’s ailing banks.

Economic News

USD – U.S Dollar Extends Losses

The U.S currency extended declines versus the Japanese yen on Tuesday after a report showed sales of previously owned U.S. homes dropped more steeply than expected in July. The dollar also lost ground against the euro, with the single currency erasing earlier losses versus the greenback after the report.

Fears the U.S. and global economic recovery could falter have contributed to safe-haven flows into the yen, the U.S. dollar and government bonds as investors unload stocks and other assets perceived as risky. USD fell in Tuesday trading amid concerns over economic weakness and following the housing data. If risk-aversion flows accelerate into September, dollar/yen will continue to drift lower irrespective of any policy moves from Tokyo, analysts said.

EUR – Euro Hits New Lows vs. the Dollar and the Yen

The European currency took a hit on Tuesday when Standard & Poor’s downgraded Ireland to AA- and warned the outlook was still negative, fanning worries about euro zone sovereign debt and the banking system.

A resulting wave of short-covering lifted the euro from a low of $1.2587 to as high as $1.2718 at one stage, before news of the Ireland downgrade dragged it back to $1.2635.

The single currency may gain further as it approached two technical levels that indicate it may rise against the U.S dollar. The shared currency was near the 50 percent Fibonacci retracement of its advance from a more-than four-year low of $1.1877 on June 7 to a three-month high of $1.3334 on Aug. 6. It could rise to $1.29 in the next few days.

JPY – Yen Rises Broadly on Global Risk Aversion

The Japanese yen rose to a 15-year high against the U.S dollar and a 9-year peak versus the euro on Tuesday amid fears the global economy is slowing, testing Japanese authorities’ resolve to stem the currency’s climb.

Declines in stock markets and a weaker-than-expected housing report in the United States also helped buoy the yen and other safe havens such as the Swiss franc.

Crude Oil – Oil Rebounds with U.S. Durable Goods Data Ahead

Crude Oil prices bounced from a 7 week low on Wednesday as investors looked for relief in U.S. durable goods and oil inventory reports due later in the day, after fears of a double-dip recession intensified with dismal housing data.

Oil slid 2% on Tuesday on news that sales of previously owned U.S. homes dropped by a record 27.2 percent in July, sending global equities to one-month lows.

Meanwhile the U.S. crude stockpiles unexpectedly fell last week, an industry report showed late on Tuesday, raising some hope that government statistics due later today would show an improvement in oil demand by the world’s largest user.

Technical News

The EUR/USD cross has experienced a bearish trend for the past 2 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 over-sold territory, indicating that an upward correction will happen anytime soon. Going long with tight stops might be a wise choice.
The price of this pair appears to be floating in the over-sold territory on the daily chart’s RSI indicating an upward correction may be imminent. The upward direction on the 4-hour chart’s RSI also supports this notion. When the upward breach occurs, going long with tight stops appears to be preferable strategy.
The cross has experienced much bearishness yesterday, and currently stands at the 84.25 level. There is much evidence in the chart’s oscillators that supports a possible bullish correction today. This is supported by the 4-hour chart’s RSI. Going long with tight stops may turn out to bring big profits today.
The USD/CHF has gone increasingly bearish in the past few days, and currently stands at the 1.0305 level. The 8-hour chart’s Slow Stochastic supports this currency cross to fall further today. However, the 4-hour chart’s Stochastic Slow signals that a bullish reversal will take place today. Entering the pair when the signs are clearer seems to be the wise choice today.

The Wild Card

Crude Oil
Crude oil prices are once again dropping, and it is currently traded around $71.80 per barrel. And now, the daily chart’s RSI is giving bullish signals, indicating that oil prices might go up. This might give forex traders a great opportunity to enter a very popular trend.

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