Italian Prime Minister's Resignation Leads to Euro Losses
The euro came within reach of a two-week low vs. the US dollar yesterday, amid news that the Italian Prime Minister plans on resigning. Investors, unsure of how the news would affect the euro-zone economic recovery, shifted their funds to safe-haven assets as a result. Today, in addition to any news regarding the political situation in Italy, both the German ZEW Economic Sentiment and US Trade Balance, scheduled to be released at 10:00 and 13:30 GMT, respectively, have the potential to generate market volatility.
USD – US Trade Balance Set to Impact Dollar
The US dollar was bearish overall yesterday, amid the continued deadlock in “fiscal cliff” negotiations between US Congressional leaders and President Obama. If the negotiations fail to progress, a set of tax increases and budget cuts threaten to push the US back into recession. Against the safe-haven Japanese yen, the greenback fell some 40 pips during European trading, eventually trading as low as 82.11, before moving back up to the 82.20 level. The USD/CHF fell close to 30 pips during mid-day trading, eventually reaching the 0.9330 level.
Turning to today, the main piece of US news is likely to be the Trade Balance figure, set to be released at 13:30 GMT. Analysts are predicting the indicator to come in at -42.4B, which would represent a decrease over last month. A worse than expected indicator today could result in the dollar extending its bearish trend against both the JPY and CHF. Additionally, traders will want to pay attention to any announcements regarding the “fiscal cliff” negotiations, as they are likely to impact the dollar.
EUR – Euro-Zone Uncertainties Weigh Down on Euro
Following the announcement that the Italian Prime Minister would soon be resigning, investors spent most of the day yesterday trying to determine how the news would affect the euro-zone economic recovery. As a result, the euro fell within reach of a two-week low against both the USD and JPY, before seeing modest upward movement later in the day. After falling as low as 1.2894 during the overnight session, the EUR/USD was able to bounce back to 1.2930 during mid-day trading. Against the yen, the euro traded as low as 106.04 before moving back to the 106.34 level later in the day.
Today, the main piece of euro-zone news is likely to be the German ZEW Economic Sentiment figure, scheduled to be released at 10:00 GMT. Analysts are forecasting the indicator to come in at -11.4, slightly higher than last month's result of -15.7. Better than expected news today, could calm investor fears that the ECB is considering an interest rate cut, which would lead to risk taking in the marketplace and bullish movement for the euro.
Gold – Gold Sees Modest Gains amid US Economic Uncertainties
The price of gold was able to advance close to $10 an ounce during European trading yesterday, as concerns regarding the impending US “fiscal cliff” boosted gold's safe-haven status among investors. After trading as high as $1717.29 during mid-day trading, the precious metal dropped back to the $1713 level by the end of the European session.
Today, gold traders will want to pay attention to the ongoing budget negotiations between US Congressional leaders and President Obama. Any sign that a deal is closer to being reached may result in dollar gains, which could result in the price of gold falling as a result.
Crude Oil – Crude Oil Reverses Gains amid Risk Aversion
After seeing mild gains throughout the first part of the day yesterday, crude oil proceeded to turn bearish toward the end of European trading, as concerns regarding the EU and US economies drove investors to safe-haven assets. The price of oil peaked at $86.60, up close to $0.40 a barrel, before falling to the $86.05 level during afternoon trading.
Today, crude oil traders will want to pay attention to the US Trade Balance figure, set to be released at 13:30 GMT. Should the indicator come in above analyst expectations, it may be taken as a sign that US demand for oil will increase, which may cause the commodity to turn bullish during afternoon trading.
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, signaling that the price shift could be downward. Going short may be a wise choice for this pair.
Most long-term technical indicators show that this pair is range trading at the moment, making a definitive trend difficult to predict. Traders may want to take a wait and see approach, as a clearer picture is likely to present itself in the near future.
The weekly chart's Slow Stochastic has formed a bearish cross, signaling an impending downward correction. Furthermore, the same chart's Williams Percent Range has crossed over into overbought territory. Opening short positions may be the wise choice for this pair.
While the Williams Percent Range on the daily chart has crossed over into overbought territory, most other long-term technical indicators show this pair range trading at this time. Taking a wait and see approach may be the preferred strategy at this time, as a clearer picture is likely to present itself in the near future.
The Wild Card
The daily chart's Slow Stochastic has formed a bullish cross, indicating that an upward correction could take place in the near future. Furthermore, the Williams Percent Range has fallen into the oversold zone. This may be a good time for forex traders to open long positions ahead of possible upward movement.
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