Euro Rebounds despite EU Recession Fears
The euro was able to recover some of its recent losses against both the US dollar and Japanese yen yesterday, despite a report that the EU has slipped deeper into recession. Analysts attributed the bullish movement to disappointing US news and speculations regarding the outcome of an upcoming Japanese election. Today, a lack of significant international indicators means that there may be low volatility in the marketplace. Still, any announcements out of the euro-zone, particularly with regards to the debt situation in Greece, have the potential to generate significant trading activity.
USD – Dollar Reverses Gains vs. Riskier Assets
The US dollar reversed some recent gains against its higher-yielding currency rivals yesterday, as fears regarding a slowing down in the US economic recovery weighed down on the greenback. The USD/CHF fell more than 30 pips during European trading, eventually dropping below the 0.9420 level. Furthermore, the British pound was able to gain more than 25 pips against the dollar during afternoon trading. That being said, the news was not all bad for the dollar. Speculations regarding the outcome of an upcoming Japanese election resulted in the USD/JPY reaching a 6 ½ month high during mid-day trading.
As markets get ready to close for the weekend, traders will want to monitor several indicators out of the US which could result in market volatility. The TIC Long-Term Purchases, Capacity Utilization Rate and Industrial Production figures all have the potential to generate additional dollar losses if they come in below their forecasted levels. That being said, any signs that the euro-zone is slipping even further into recession may lead to risk aversion, which could help the greenback.
EUR – Euro Gains May be Temporary
The euro hit a six-day high vs. the US dollar and a two-week high against the yen yesterday, despite news that the EU has slipped deeper into recession. Fears regarding a slowing down in the US economic recovery, highlighted by the upcoming “fiscal cliff”, and speculations regarding next month's Japanese election were responsible for the euro's bullish movement. The EUR/USD gained more than 50 pips during the European session to trade as high as 1.2793. Against the JPY, the euro moved up more than 100 pips, eventually reaching as high as 103.95.
Today, analysts are warning that the euro's recent gains could turn out to be temporary, as uncertainties regarding the next round of Greek bailout funds may generate pessimism in the EU economic recovery. Any announcements from EU officials regarding Greece's current economic status may lead to heavy volatility for euro pair before markets close for the weekend. That being said, if US data comes in below expectations during afternoon trading, the euro may be able to extend its gains against the dollar.
Gold – Gold Falls following Report on Global Demand
Gold took significant losses during European trading yesterday, following a report which stated that demand for the precious metal dropped during the third quarter of this year. Prices dropped by close to $15 an ounce over the course of the mid-day session, eventually reaching the $1710 level.
Today, gold traders will want to pay attention to what direction the dollar takes over the course of the day. If the greenback is able to regain some of yesterday's losses against the euro, gold would become more expensive for international buyers, which could result in additional bearish movement before markets close for the weekend.
Crude Oil – Middle East Violence Keeps Oil near 1-Week High
An escalation in Middle East violence kept the price of oil near its recent one-week high during European trading yesterday. Crude traded as high as $87.05 a barrel, up close to $0.60, before once again turning bearish during the evening session and dropping back to the $86.30 level.
As markets get ready to close for the weekend, traders will want to continue monitoring the ongoing military conflict in the Middle East. Any escalation in violence could generate supply side fears among investors, which may drive the price of oil higher. Additionally, if US news comes in higher than expected today, oil cold extend its bullish trend.
Most long-term technical indicators place this pair in neutral territory, meaning that a defined trend is difficult to predict at this time. Traders may want to take a wait and see approach, as a clearer picture is likely to present itself in the near future.
The daily chart's Williams Percent Range has fallen into oversold territory, indicating that an upward correction could take place in the near future. Additionally, a bullish cross has formed on the same chart's Slow Stochastic. This may be a good time for forex traders to open long positions.
The Relative Strength Index on the weekly chart is approaching the overbought zone, signaling that this pair could see a downward correction in the coming days. Furthermore, the Slow Stochastic on the same chart has formed a bearish cross. Going short may be the wise choice for this pair.
While a bearish cross appears to be forming on the weekly chart's MACD/OsMA, most other long-term technical indicators show this pair range trading. Traders may want to take a wait and see approach, as a more defined trend may present itself in the coming days.
The Wild Card
The Williams Percent Range on the daily chart has crossed into overbought territory, indicating that a downward correction could occur in the near future. Furthermore, a bearish cross has formed on the same chart's Slow Stochastic. This may be a good time for forex traders to open short positions ahead of a possible downward correction.
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