Higher-Yielding Assets Give up Gains Ahead of Busy Trading Week
Riskier currencies and commodities, including the euro and gold, reversed some of their recent gains on Friday afternoon after a credit rating downgrade of the European Stability Mechanism and European Financial Stability Fund. This week, a batch of potentially significant news events out of the euro-zone and US virtually ensure market volatility. Traders will want to pay attention to the US ISM Manufacturing PMI today, Tuesday's Spanish Unemployment Change figure, followed by a Spanish bond auction and the US ADP Non-Farm Employment Change on Wednesday, Thursday's EU Minimum Bid Rate, and finally to Friday's US Non-Farm Payrolls figure.
USD – Key US Employment Data Set to Drive Markets This Week
The US dollar was able to gain on several of its main currency rivals on Friday as investors shifted their funds to safe-haven currencies following the credit rating downgrade of two EU financial institutions. Against the Swiss franc, the greenback gained more than 40 pips during the first part of the day, eventually reaching as high as 0.9291, before closing out the week at 0.9279. The GBP/USD fell more than 70 pips during the mid-day session, eventually reaching as low as 1.5987 before a slight upward correction brought the pair to 1.6010 when markets closed for the weekend.
This week, several key indicators out of the US are likely to generate market volatility. Today, the ISM Manufacturing PMI could help the dollar extend some of its recent gains if it comes in above the forecasted 51.5. Later in the week, traders will want to remember that the all-important US Non-Farm Payrolls figure is scheduled to be released this Friday. Analysts are forecasting that the figure will come in substantially lower than last month's result. If true, the dollar could take heavy losses as a result.
EUR – Credit Ratings Downgrade Hurts Euro
The euro took losses against several of its main currency rivals on Friday, following the credit rating downgrade of both the European Stability Mechanism and European Financial Stability Fund. After trading as high as 1.3025 during the early morning session, the EUR/USD began falling and eventually finished out the week at 1.2984. Against the Japanese yen, the euro fell close to 50 pips over the course of European and US trading before closing out the week at 107.08.
This week, in addition to a batch of key US data that is virtually certain to generate volatility for the euro, several news events out of the EU are set to impact the marketplace. Tuesday's Spanish Unemployment Change followed by a Spanish bond auction on Wednesday will be closely watched by investors with worse than expected data likely to weigh down on the euro. Thursday's Minimum Bid Rate and ECB Press Conference are also expected to result in losses for the euro if they signal an economic slowdown in the euro-zone.
Gold – Gold Falls amid Global Economic Uncertainties
The price of gold fell during afternoon and evening trading on Friday, as uncertainties regarding the pace of the EU economic recovery, combined with US “fiscal cliff” worries, led to risk aversion in the marketplace. The precious metal lost over $20 an ounce, eventually trading as low as $1708.11 before a slight upward correction brought prices back to $1714.51 when markets closed for the week.
This week, gold traders will want to pay attention to euro-zone news, specifically out of Spain. Any signs that the Spanish government is closer to formally requesting a bailout package could result in risk taking, which may help gold recover some of Friday's losses. Additionally, if the US Non-Farm Payrolls report comes in above expectations on Friday, gold could see upward movement as a result.
Crude Oil – Crude Oil Sees Gains Ahead of Non-Farms Report
The price of crude oil advanced more than $1 a barrel on Friday amid signs that demand in the US may increase in the near future. As the world's leading oil consuming country, demand in the US often has a significant effect on the price of oil. Crude was able to gain throughout the day before closing out the week at $88.95.
This week, US economic news is likely to have the biggest impact on oil prices. Traders will want to pay attention to today's ISM Manufacturing PMI, Wednesday's ADP Non-Farm Employment Change and Crude Oil Inventories figures, and Friday's Non-Farm Payrolls. Any better than expected news may be taken as a sign that demand in the US will increase further, which could help crude extend its bullish trend.
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 Slow Stochastic is close to 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. This may be a good time for forex traders to open short positions ahead of a possible downward breach.
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