Riskier Assets Extend Upward Trend
With the exception of the euro, which was negatively affected by EU manufacturing data, most higher-yielding currencies, commodities and precious metals saw upward movement yesterday. Analysts attributed the bullish movement to investor risk taking, after US lawmakers agreed to a last minute deal to avoid the so called “fiscal cliff” of tax increases and spending cuts that threatened to bring another recession. Today, the main piece of economic news is likely to be the US ADP Non-Farm Employment Change at 13:15 GMT, which is widely considered an accurate predictor of Friday's all-important Non-Farm Payrolls report.
USD – ADP Data, FOMC Minutes Likely to Impact Dollar Today
The US dollar saw downward movement against its higher-yielding currency rivals throughout the day yesterday, after a last minute budget deal by US lawmakers encouraged investors to shift their funds to riskier assets. The AUD/USD advanced more than 40 pips during European trading, to eventually reach as high as 1.0516. Against the Canadian dollar, the greenback fell around 35 pips over the course of the day to trade as low as 0.9836.
Today, dollar traders will want to pay attention to several potentially significant US indicators. Specifically, the ADP Non-Farm Employment Change and FOMC Meeting Minutes, respectively scheduled for 13:15 and 19:00 GMT, are expected to create the most market volatility. With the ADP figure forecasted to come in at 134K, significantly higher than last month's result, risk taking by investors may weaken the greenback further. Additionally, if the FOMC minutes indicate positive growth prospects for the US, riskier currencies could continue gaining on the dollar.
EUR – EU Manufacturing Data Leads to Losses for the Euro
The euro took moderate losses against both the Japanese yen and US dollar during European trading yesterday, following the release of EU manufacturing data which indicated that the region was still deep in recession. The EUR/JPY fell some 50 pips during the morning session, eventually trading as low as 115.16, before an upward correction brought the pair to 115.55. The EUR/USD lost more than 40 pips during the first part of the day to reach as low as 1.3231, before bouncing back to 1.3255 by the beginning of the evening session.
The main piece of euro-zone news today is likely to be the German Unemployment Change, scheduled to be released at 08:55 GMT. As the EU's biggest economy, German indicators tend to have a strong impact on the euro. Today's figure is forecasted to come in at 11K, which if true, would signal that the German labor sector is weakening and may lead to additional losses for the euro. That being said, if any of today's US news comes in above expectations, investor risk taking may help the euro recoup some of its losses.
Gold – Gold Benefits from Weakened US Dollar
The price of gold shot up to a two-week high yesterday, following positive US news which weakened the dollar and made gold cheaper for international buyers. The precious metal advanced more than $13 an ounce during European trading, eventually trading as high as $1694.79.
Today, gold traders will want to monitor news out of both the euro-zone and US. If any of the news leads to additional risk taking in the marketplace, the safe-haven US dollar could take further losses, which may help gold extend its recent bullish run.
Crude Oil – Risk Taking Leads to Major Gains for Crude Oil
The price of crude oil hit its highest level in almost three-months yesterday, after US lawmakers announced that they had reached a budget agreement and investors shifted their funds to riskier assets. The commodity, which traded as high as $93.78 during the afternoon session, gained more than $1 a barrel during European trading.
Today, the ADP Non-Farm Employment Change is likely to have the biggest impact on oil prices. If the indicator comes in at or above the expected 134K, it would signal additional improvements in the US labor sector and could lead to further gains for higher yielding commodities like crude oil.
The Bollinger Bands on the weekly chart are narrowing, indicating that a price shift could occur in the near future. Furthermore, the Williams Percent Range on the same chart has crossed over into overbought territory, signaling that the price shift could be downward. Opening short positions may be the wise choice for traders today.
While the Williams Percent Range on the weekly chart is in overbought territory, most other long-term technical indicators are currently in neutral territory, making a definitive trend difficult to predict at this time. Taking a wait and see approach may be the best choice for traders, as a clearer picture is likely to present itself in the near future.
The Relative Strength Index on the weekly chart has crossed into overbought territory, indicating that a downward correction could occur in the near future. This theory is supported by the daily chart's Williams Percent Range, which is currently at -10. Opening short positions may be the wise choice for this pair.
A bullish cross on the weekly chart's Slow Stochastic is signaling that this pair could see an upward correction in the coming days. Additionally, the Williams Percent Range on the same chart has dropped into oversold territory. Traders may want to open long positions today, ahead of possible upward movement.
The Wild Card
The daily chart's Bollinger Bands are narrowing, indicating a price shift could occur in the near future. Furthermore, the MACD/OsMA on the same chart has formed a bullish cross, indicating that the price shift could be upward. This may be a good time for forex traders to open long positions, ahead of a possible bullish correction.
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