US Budget Agreement May Boost Riskier Assets Today
Higher-yielding assets, including crude oil and the British pound, turned bullish to start off the week, as hopes that US lawmakers would reach a budget agreement encouraged risk taking before markets closed for the New Year's holiday. Following the last minute budget deal, analysts are predicting that riskier currencies and commodities could extend their upward movement today. Still, traders will want to pay attention to the US ISM Manufacturing PMI, set to be released at 15:00 GMT. A worse than expected figure could boost the safe-haven USD and JPY.
USD – US Manufacturing Indicator Set to Impact Dollar
The US dollar took losses against several of its higher yielding currency rivals on Monday, as signs of progress in “fiscal cliff” negotiations between US lawmakers led to risk taking the marketplace. Against the New Zealand dollar, the greenback lost more than 70 pips during the second half of the day. The NZD/USD was last trading at 0.8281 when markets closed for the New Year's holiday. The GBP/USD gained some 115 pips during afternoon trading, eventually peaking at 1.6273, before dropping back to 1.6243.
Turning to today, analysts are warning that the dollar could take additional losses against its main currency rivals if yesterday's last minute agreement to avoid the “fiscal cliff” leads to investor risk taking. In addition, traders will also want to pay attention to the US ISM Manufacturing PMI, scheduled to be released at 15:00 GMT. Predictions are calling for the figure to come in at 50.2 which, if true, would signal expansion in the manufacturing sector and may lead to additional losses for the safe-haven greenback.
EUR – Euro Poised to Resume Bullish Trend Today
The euro, which failed to capitalize on investor risk taking, took moderate losses against several of its main currency rivals on Monday. Against the US dollar, the euro gained some 45 pips during mid-day trading to reach as high as 1.3227, only to reverse the gains later in the day. The EUR/USD was last trading at 1.3196 when markets closed for the New Year's holiday, down just over 30 pips for the day. The EUR/GBP fell around 60 pips over the course of the day, eventually reaching as low as 0.8102, before bouncing back to 0.8122.
Today, some analysts are predicting that the euro will be able to resume its bullish trend, as a last minute US budget deal yesterday may encourage investors to shift their funds to higher-yielding assets. Still, traders will want to pay attention to manufacturing data out of Spain, Italy, the UK and US. Should any of the data come in below the forecasted levels, fears regarding the pace of the global economic recovery may hurt riskier assets, including the euro.
Gold – Gold Sees Significant Gains before New Year's Holiday
The price of gold saw significant gains on Monday, despite the risk taking in the marketplace which typically weighs down on safe-haven assets. The precious metal last traded at $1675.51 before markets closed for the New Year's holiday, up close to $20 an ounce.
Today, traders can anticipate additional volatility in the price of gold, as manufacturing data from several euro-zone countries, the UK and US are all scheduled to be released. Any worse than expected data may lead to additional gains for gold during European trading.
Crude Oil – Risk Taking leads to Significant Gains for Oil
The price of crude oil saw significant upward movement on Monday, as speculations that US lawmakers were close to reaching an agreement to avoid the “fiscal cliff” of tax increases and budget cuts, led to risk taking among investors. The commodity was trading at $91.87 when markets closed, up more than $1 a barrel for the day.
Turning to today, oil traders will want to pay attention to the US ISM Manufacturing PMI at 14:00 GMT. Analysts are predicting that the PMI will come in at 50.2, which would signal expansion in the US manufacturing sector. If true, speculations that demand for oil in the US will increase could boost the price of crude further.
The Bollinger Bands on the weekly chart are beginning to narrow, indicating that a price shift could occur in the coming days. Additionally, the Slow Stochastic on the same chart has formed a bearish cross, signaling that the price shift could be downward. This may be a good time to open short positions.
Most long-term technical indicators show this pair range trading, meaning that a definitive trend is difficult to predict at this time. Traders may want to take a wait and see approach for this pair, as a clearer picture is likely to present itself in the near future.
A bearish cross on the weekly chart's Slow Stochastic indicates that this pair could see downward movement in the coming days. Furthermore, the Relative Strength Index on the same chart has crossed over into overbought territory. This may be a good time for traders to open short positions.
The Williams Percent Range on the weekly chart has dropped into oversold territory, indicating that an upward correction could occur in the near future. Additionally, the Slow Stochastic on the same chart has formed a bullish cross. Opening long positions may be the smart choice for this pair.
The Wild Card
The Relative Strength Index on the daily chart has fallen into oversold territory, indicating that upward movement could occur in the near future. Additionally, the Slow Stochastic on the same chart has formed a bullish cross. This may be a good time for forex traders to open long positions, ahead of a possible upward correction.
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