Source: ForexYard
The euro came within reach of a four-month high against the US dollar yesterday, as speculations that a German court will rule in favor of the euro-zone bailout fund led to risk taking in the marketplace. In addition, expectations that the Fed will soon initiate a new round of quantitative easing weighed down on the greenback throughout the day. Today, in addition to the German court ruling, traders will also want to pay attention to the UK Claimant Count Change, scheduled to be released at 8:30 GMT. Any better than expected news could help the GBP/USD extend its recent bullish trend.
Economic News
USD – Dollar Still Bearish Ahead of FOMC Meeting
The US dollar fell further against its main currency rivals yesterday, as speculations that the Fed will soon move in to stimulate the US economy gave a boost to higher-yielding assets. Against the Swiss franc, the greenback fell close to 70 pips during European trading to reach as low as 0.9395 before bouncing back to the 0.9410 level. The AUD/USD gained more than 80 pips to trade as high as 1.0438, before a slight downward correction brought the pair to the 1.0425 level.
Today, dollar traders will want to pay to a German court ruling regarding recent measures the European Central Bank has taken to lower borrowing costs in the euro-zone. If the court backs the ECB’s bond buying program, investors may continue buying up higher yielding assets, which could result in further losses for safe-haven currencies like the USD. Later in the week, a statement from the FOMC could lead to more bearish movement for the dollar if the Fed decides to initiate a new round of quantitative easing.
EUR – Euro May See Additional Gains Today
The euro saw gains against several of its main rivals yesterday, ahead of a German court ruling regarding the recent steps taken by the ECB to lower borrowing costs in the euro-zone. Expectations that the ruling will not the actions the ECB plans on taking resulted in risk taking among investors. The EUR/USD gained more than 80 pips during the European session to reach as high as 1.2840. Against the Japanese yen, the common currency was able to recover from losses during morning trading and advanced some 40 pips before hitting the 99.93 level.
Today, the German court ruling is likely to be the most significant piece of news and is expected to result in heavy volatility for the euro. While most analysts are convinced that the court will rule in favor of the ECB’s bond buying program, some are warning that there is still the possibility that the ruling will limit steps needed to lower borrowing costs in the euro-zone. Any indications that the ECB could be held back in its ability to combat the euro-zone debt crisis could cause the EUR to reverse some of its recent gains.
Gold – Gold Sees Gains amid Bullish Euro
A strong euro helped boost demand among international buyers for gold yesterday, as the precious metal remained within reach of a recent six-month high hit last Friday. Gold gained more than $10 an ounce during European trading yesterday to reach as high as $1737.90, just below last Friday’s high of $1741.50.
Today, gold traders will want to pay attention to the impact a court ruling out of Germany regarding the ECB bailout fund on the euro. If the euro is able to extend yesterday’s gains against the US dollar, gold could see additional bullish movement as well. That being said, some analysts are warning that gold may have already reached overbought territory and are questioning if the metal can continue moving higher.
Crude Oil – Oil Trades Higher Before US Inventories Report
The price of crude oil gained more than $1 a barrel during European trading yesterday, and came within reach of a three-week high amid an increase in risk taking in the marketplace. The commodity traded as high as $97.22 before staging a minor downward correction and dropping to the $96.99 level.
Turning to today, in addition to potentially significant news out of the euro-zone which could lead to further risk taking, oil traders will also want to pay attention to the US Crude Oil Inventories figure, set to be released at 14:30 GMT. If the indicator signals to investors that demand for oil in the US has gone down since last week, the price of crude could turn bearish during the afternoon session.
Technical News
EUR/USD
The Bollinger Bands on the weekly chart are narrowing, signaling that this pair could see a shift in price in the coming days. Furthermore, the Williams Percent Range on the same chart has crossed over into the overbought zone, indicating that the change in price could be downward. Opening short positions may be the wise choice for this pair.
GBP/USD
The daily chart’s Relative Strength Index is approaching overbought territory, signaling that a downward correction 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.
USD/JPY
While the weekly chart’s Williams Percent Range has dropped into oversold territory, most other long-term technical indicators show this pair range trading. Traders may want to take a wait and see approach, as a clearer picture is likely to present itself in the near future.
USD/CHF
The daily chart’s Relative Strength Index is currently in oversold territory, which indicates that this pair could see a bullish correction in the near future. Additionally, the Williams Percent Range on the weekly chart has fallen to the -90 level, giving further support to the theory of impending upward movement. Going long may be the smart choice for this pair.
The Wild Card
DAX 30
The Relative Strength Index on the daily chart has crossed into the overbought zone, indicating that a downward correction could occur in the near future. Furthermore, the Slow Stochastic on the same chart appears close to forming a bearish cross. This may be a good time for forex traders to open short positions ahead of a possible downward breach.
Forex Market Analysis provided by ForexYard.
© 2006 by FxYard Ltd
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