Risk appetite and market volatility are likely to be slightly elevated today as investors gear up for the rollercoaster that lies ahead considering today is the last day before the deadline for lifting the US debt ceiling.
Economic News
USD – USD Edges Higher as Debt Talks Nearing End
The US dollar (USD) was seen trading mildly bullish at the start of this week as traders anticipate a completion to the debt talks that many assume will end the debt ceiling debacle that has gripped the nation for the past few weeks. The dollar has been primarily gaining from such momentum due to the shift into safer assets, but woes regarding the inability of Congress to address the impending debt crisis have partially dragged on the USD in sporadic bursts.
Though news has been both positive and negative, traders have been predisposed to short the higher yielding assets in general as the US and European economies falter. As the August 2 deadline rapidly approaches, we are beginning to see some hedging behavior with the Swiss franc (CHF) and Japanese yen (JPY) acting as alternate stores of value should the US default on its loans. The USD/JPY in particular has fallen below intervention levels and now trades near 77.50.
As for today, the US economy will be publishing an important manufacturing PMI reading at 15:00 GMT. Risk appetite and market volatility are likely to be slightly elevated today as investors gear up for the rollercoaster that lies ahead considering today is the last day before the deadline for lifting the US debt ceiling.
EUR – EUR Mixed as Traders Await US Debt Ceiling News
The euro (EUR) was seen trading with mixed results this morning following news of pessimistic growth in both the US and European economies, and heightened anticipation ahead of debt talks in the US. Against the US dollar (USD) the euro was trading somewhat bearish in late trading Friday as shifts into safe-haven investments pulled money away from the euro and into stores of value.
Traders are looking for a way to balance a renewal of risk appetite with continued shakiness in global markets. A weakly optimistic sentiment towards investing in the US dollar at the moment, due to the debt limit talks taking place in Congress, has many investors on edge. A failure to lift the debt ceiling could result in a default by the US government, causing ratings agencies to downgrade US debt and pull the global economy in several directions, likely bearish across the board.
Sentiment across the euro zone has also turned negative, with many analysts and economists expecting moves towards safety by traders this week. Any more bearishly-leaning news out of any major global economy will likely pull down on the EUR even further as investors flee risk, despite a moderate sentiment of optimism taking hold this morning.
AUD – AUD Sees Uptick as Data Supports Growth
The Australian dollar (AUD) was seen trading moderately higher versus most other currencies this morning after inflationary data last week caused a stir in Pacific markets. The Aussie has been experiencing several wide swings lately from the various shifts into and away from riskier assets. Traders witnessed a turn towards safety after last Friday’s economic reports, but sentiment appears mixed as of this morning.
The latest moves have helped to lift the AUD as traders turned to its high interest rates in order to seek profits in higher yielding assets like the AUD, NZD and Scandinavian currencies. The producer price index (PPI) published last week beat forecasts, but so far has pushed down on the Aussie as traders had priced in positive growth ahead of time. The renewal of risk appetite could explain part of this recent uptick, but it doesn’t appear that it will last through the day.
Gold – Gold Price Increasing Monday Morning
The price of Gold found solid support over the past week despite the rising strength of the US dollar, the currency in which such assets are valued. Precious metals bear their name as a result of their traditional store of value in times of uncertainty. Gold has been trading with rather mild price action since June, but traders have been awaiting price resurgence due to the rampant increase in risk aversion due to rising tensions from Greece and faltering debt talks out of the US.
As investors seek safety, the value of gold, which has been seen trading with mixed results, jumped to an all-time high of $1633.65 per troy ounce. A sudden jump in dollar values due to this week’s risk averse environment has so far done little to suppress this price movement as gold serves as a traditional store of value. Should risk sentiment hold steady this week, the prices for this precious metal may continue to find support as the week moves ahead.
Technical News
EUR/USD
The weekly chart shows a bullish engulfing pattern was followed by a false breakout above the trend line falling off of the May and July highs. A pullback from this resistance line formed a doji reversal candlestick which hints at declines in the EUR/USD. The 200-week moving average looks to be the first support at 1.4025 followed by the 200-day moving average at 1.3930. The rising trend line from the May low could also be supportive at 1.3830. To the upside 1.4580 will need to hold to maintain the bearish technical picture. A close above this level could go on to test 1.4700 and this year’s high of 1.4940.
GBP/USD
Three weeks of consistent gains for cable are beginning to shift the technical picture from bearish to bullish. Sterling has moved above resistance levels that otherwise would have contained the pair. The first break occurred above the neckline of the head and shoulders pattern at 1.6185 and the second major break occurred at 1.6370 above the previous trend line rising from the May 2010 low. Initial resistance will be the May 31st high at 1.6550 followed by the April high at 1.6745. A move lower for the GBP/USD will likely test the base at 1.6260 followed by the previously broken trend line off of the April high at 1.6140. A breach of 1.6000 could have scope towards 1.5780.
USD/JPY
Yen strength has returned with a vengeance. Last week’s candlestick closed with a shaved bottom indicating momentum is to the downside. This week’s opening gapped higher but the price managed to hold below the current short term trend line from the July 20th high which comes in at 78.05. Additional resistance may be 79.60 and the 55-day moving average at 80.15 but the downside is calling. Support is found at 76.70 from last week’s low followed by the all-time low from March at 76.11. A break here and we move into uncharted territory where the psychological support at 75.00 and 70.00 come into play.
USD/CHF
The Swiss franc is in a similar position as the yen as the USD/CHF moves into uncharted territory. Bias remains to be short but Monday’s opening gap higher could create a Harami reversal pattern which may lead slight gains for the pair. A daily close will be needed for confirmation. Resistance is found at 0.8080 and 0.8275. A move higher to these levels would provide for potential short entries back into the long term downtrend with targets at the big round number at 0.7800.
The Wild Card
USD/CAD
The pair moved higher on Friday only to run into resistance at the falling trend line from the June and July highs. Today the resistance comes in at 0.9600. This may provide forex traders with a resistance level to jump back into the long term downward trend.
Forex Market Analysis provided by ForexYard.
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