EUR Remains Bearish ahead of ECB Rate Decision
Forex Analysis Overview from Forexyard 4/7/2012
The euro saw moderate losses against several of its main currency rivals during morning trading yesterday, as disappointing euro-zone data from earlier in the week continued to weigh down on the common-currency. Today, a bank holiday in the US may result in a low liquidity environment in the marketplace. Traders will want to remember that during times of low liquidity, heavy price movements can occur for seemingly no reason. Later in the week, the euro-zone Minimum Bid Rate is likely to result in significant market volatility. Analysts are predicting that the European Central Bank will cut interest rates, which if true, could result in the EUR turning bearish
USD – Dollar Recoups Losses vs. JPY
The US dollar staged a recovery against the Japanese yen yesterday after tumbling earlier in the week due to a disappointing US manufacturing indicator. The USD/JPY gained close to 50 pips for the day, eventually reaching as high as 79.92 before staging a slight downward correction and stabilizing at the 79.80 level. Against the British pound, the dollar saw moderate gains throughout the day as investors continued to shift their funds to safe-haven assets. The GBP/USD fell just over 40 pips during the European session, eventually reaching 1.5657 before correcting itself.
Today, a lack of news releases in the US due to the July 4th holiday, means that any dollar movement will likely be a result of announcements out of the euro-zone. With most analysts predicting that the ECB will cut euro-zone interest on Thursday, investors may open short euro positions today, which could result in dollar gains. Later in the week, traders will want to remember to pay attention to the US Non-Farm Payrolls figure. The dollar could reverse its gains against the yen if the employment statistic comes in below expectations.
EUR – Euro-Zone Worries Continue to Weigh Down on EUR
The euro largely remained bearish during the first half of yesterday’s trading session, as doubts about a plan to combat the euro-zone debt crisis continued to weigh down on the common currency. That being said, the currency was able to stage a moderate recovery during the evening session. After falling close to 50 pips during early morning trading, the EUR/USD bounced back to eventually trade above the 1.2600 level. Against the JPY, the euro fell about 40 pips during the morning session, eventually reaching as low as 100.19, before recovering to trade as high as 100.70.
Today, analysts are warning that yesterday’s euro gains could be temporary, especially given the fact that the ECB is forecasted to cut euro-zone interest rates later in the week. In addition, traders will want to pay attention to any announcements today regarding last week’s plan to combat the euro-zone debt crisis. Several countries have opposed the plan already. Additional opposition today could turn the common-currency bearish.
Gold – Gold Receives a Boost amid Weakened USD
The price of gold increased by over $17 an ounce during European trading yesterday, as investors continued to view the precious metal as a safe-haven following disappointing US news earlier in the week. By the beginning of the US session, gold was priced just below $1620.
Turning to today, a bank holiday in the US may result in low liquidity in the marketplace. Traders should be warned that during periods of low liquidity, sudden price movements can occur for seemingly no reason. If investors remain pessimistic about the US economic recovery today, gold may be able to further extend its recent gains.
Crude Oil – Tensions with Iran Cause Crude Oil to Spike
An Iranian threat to block a strategic waterway to oil tankers led to supply side fears among investors yesterday and resulted in the price of crude oil spiking throughout European trading. Crude rose by well over $3 a barrel, eventually reaching just below the $88 level.
Today, traders will want to continue monitoring developments regarding the ongoing dispute regarding Iran’s disputed nuclear program. Any escalation in tensions could result in oil extending yesterday’s gains. That being said, analysts are fairly confident that Iran will back down from its threat to block the waterway. If so, oil could stage a downward correction today.
Most long-term technical indicators show this pair range-trading, meaning that no defined trend can be determined 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 most long-term technical indicators place this pair in neutral territory, the MACD/OsMA appears to be forming a bullish cross. Traders will want to keep an eye on this indicator. Should the cross form, it may be a sign of impending upward movement.
The Bollinger Bands on the weekly chart are narrowing at the moment, indicating that this pair could see a price shift in the coming days. Furthermore, the MACD/OsMA on the same chart appears to be forming a bearish cross. If the cross forms, it may be a good time to open short positions.
Both the Williams Percent Range and Relative Strength Index on the weekly chart appear close to crossing into overbought territory. Traders will want to pay attention to these two indicators. If they continue going up, it may be a sign of an impending bearish correction.
The Wild Card
The Williams Percent Range on the daily chart has crossed into overbought territory, signaling a possible downward correction in the near future. In addition, the Slow Stochastic on the same chart appears to be forming a bearish cross. This may be a good time for forex traders to open short positions ahead of a possible downward breach.