Source: ForexYard
The US dollar climbed to a fresh two-year high against the euro yesterday, as investor pessimism in the euro-zone economic recovery combined with a better than expected US Unemployment Claims figure helped boost the greenback. As markets prepare to close for the weekend, traders will want to pay attention to several potentially significant news events which could generate volatility. If the Italian 10-year bond auction show that borrowing costs in Italy has gone up, the euro could see additional losses during mid-day trading. Furthermore, the US Producer Price Index, scheduled to be released at 12:30 GMT, could help the dollar extend its recent gains if it comes in above the forecasted -0.5%.
The dollar extended its recent bullish trend against several of its higher-yielding currency rivals yesterday, as fears regarding the state of the global economic recovery led to an increase in risk aversion. A significantly worse than expected Australian Employment Change figure sent the AUD/USD down over 140 pips for the day. The pair eventually found support around the 1.0110 level. The GBP/USD fell more than 80 pips over the course of the day, eventually reaching as low as 1.5431 during the afternoon session.
As we close out the week, the dollar could potentially extend its recent gains after today’s Producer Price Index (PPI) is released at 12:30 GMT. Analysts are forecasting the PPI to come in at -0.5%, which if true, would represent an improvement over last month’s -1.0% and could help boost confidence in the US economic recovery. Furthermore, if an Italian bond auction today indicates that there is poor demand for Italian debt, investors may continue shifting their funds to safe-haven currencies which could help the greenback.
The euro fell against several of its main currency rivals yesterday, including the USD and JPY, as investors remained concerned about the implications of the euro-zone debt crisis and the lack of a plan to stop it from spreading to other countries in the region. The EUR/USD hit a fresh two-year low at 1.2165 during mid-day trading. Overall, the pair fell over 60 pips for the day. Against the Japanese yen, the euro was down over 100 pips for the day, eventually hitting 96.41 before staging a minor upward correction.
Turning to today, traders will want to carefully monitor the results of an Italian 10-year bond auction. One of the main reasons behind the euro’s recent bearish trend is the rapidly increasing borrowing costs in Spain and Italy. Should today’s bond auction show that borrowing costs have gone up further, it may lead to fears that Italy will need a bailout in the near future, in which case, the euro could see additional losses before markets close for the weekend.
After seeing moderate gains earlier in the week, gold resumed its downward trend yesterday as a bullish US dollar made the precious metal more expensive for international buyers. The price of gold fell be close to $15 an ounce during European trading, eventually reaching as low as $1555.01 before staging a minor upward correction.
Turning to today, gold traders will want to pay attention to the results of the Italian 10-year bond auction. If the news leads to an increase in risk aversion in the marketplace, the safe-haven dollar could see additional gains in which case the price of gold may fall further.
The price of crude oil fell throughout the day yesterday, as negative news out of Australia and the euro-zone led to fears that global demand for the commodity will fall. Furthermore, a strengthened US dollar resulted in oil becoming more expensive for international investors. Crude fell by over $1 a barrel during the European session, eventually reaching as low as $84.21.
Whether oil will be able to rebound before markets close for the weekend today will largely be dependent on news out of the euro-zone. If the Italian 10-year bond auction signals poor demand for Italian debt, investor fears regarding the pace of the global economic recovery may intensify, which could result in further losses for oil.
The daily chart’s Williams Percent Range has crossed over into oversold territory, indicating that this pair could see an upward correction in the near future. This theory is supported by the Slow Stochastic on the same chart, which has formed a bullish cross. Going long may be the wise choice.
Most long-term technical indicators place this pair in neutral territory, meaning that no defined trend can be predicted 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.
While the daily chart’s MACD/OsMA has formed a bearish cross, indicating that this pair could see downward movement in the near future, most other technical indicators show this pair range-trading. Traders may want to take a wait and see approach until a clearer trend can be determined.
The Relative Strength Index on the daily chart has crossed over into overbought territory, indicating that downward movement could occur in the near future. Furthermore, the Slow Stochastic on the same chart has formed a bearish cross. Going short may be the wise choice for this pair.
The daily chart’s Relative Strength Index has crossed over into overbought territory, indicating that this pair could see a downward correction in the near future. Furthermore, the MACD/OsMA on the same chart has formed a bearish cross. This may be a good opportunity for forex traders to open short positions.
Forex Market Analysis provided by ForexYard.
© 2006 by FxYard Ltd
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