Forex Analysis – Market Forecasted to See Heavy Volatility This Week
Forex analysis from Forexyard, Monday, 2nd July 2012
The euro was able to close out last Friday’s trading session with its biggest one-day gain against the US dollar in eight-months. The EUR/USD shot up well over 200 pips after euro-zone leaders pledged to reduce Spain and Italy’s borrowing costs. The pair finished out the week at 1.2651. This week, analysts are warning that the euro’s recent gains could be short lived as investors learn more about the agreement between EU leaders and whether or not it is plausible. Traders will also want to pay attention to this week’s euro-zone Minimum Bid Rate followed by the US Non-Farm Employment Change on Friday. Both indicators could lead to significant market volatility.
USD – Risk Taking Leads to Dollar Losses
The US dollar took substantial losses against several of its main currency rivals on Friday, following an announcement that EU leaders have agreed to several measures to combat the euro-zone debt crisis. The news led to risk taking among investors and sent the safe-haven dollar tumbling against both the Australian dollar and British pound. The AUD/USD gained over 215 pips for the day before finishing out the week at 1.0241. The GBP/USD saw gains of close to 190 pips and finished the week at 1.5704.
This week, in addition to any new developments out of the euro-zone, dollar traders will want to remember that the all-important US Non-Farm Payrolls figure will be released on Friday. The indicator is considered the most important news event on the forex calendar, and consistently leads to heavy market volatility. At the moment, analysts are predicting that the US added only 92K jobs in June, which if true, would signal a slowdown in the US economic recovery and could result in heavy dollar losses. That being said, if Friday’s news shows that more jobs were added than originally forecasted, the dollar could reverse some of its recent losses.
EUR – Analysts Warn EUR Gains Could be Temporary
A pledge by euro-zone leaders to actively work to bring down borrowing costs in Spain and Italy, as well as an agreement to establish a single supervisory body for all euro-zone banks, led to significant euro gains throughout the day on Friday. In addition to the over 200 pip gain vs. the dollar, the euro also turned bullish against the yen and British pound. The EUR/JPY closed the week at 100.94, up around 225 pips for the day. The EUR/GBP gained close to 80 pips, reaching as high as 0.8094, before staging a downward correction to finish out the day at 0.8054.
This week, analysts are warning that the euro’s recent bullish streak may be short lived as more details regarding the deal reached by euro-zone leaders are released. There are fears that the EU simply does not have enough funds to bring down Spanish and Italian borrowing costs. Furthermore, traders will want to pay attention to the euro-zone Minimum Bid Rate and ECB Press Conference on Thursday. A pessimistic outlook on the euro-zone economic recovery may cause the common-currency to give up some of its recent gains.
Gold – Risk Taking Leads to Gains for Gold
The price of gold spiked on Friday, as investors shifted their funds to higher yielding assets following positive developments out of the euro-zone. Gold was up over $40 an ounce for the day, and was able to close out the week at $1597.28, just below the psychologically significant $1600 level.
This week, gold traders will want to continue monitoring developments out of the euro-zone, particularly regarding the details of the recent agreement among EU leaders designed to combat the region’s debt crisis. Any signs that the agreement is not feasible could result in risk aversion in the marketplace, which could send the price of gold down.
Crude Oil – Oil Finishes the Week on a Bullish Note
Crude oil was able to benefit from risk taking in the marketplace on Friday and finished out the day up over $6 a barrel. The bullish trend was attributed to positive euro-zone developments which weakened the dollar and made oil cheaper for international buyers. Crude closed at the week at $84.94.
This week, oil traders will want to pay attention to US news, in particular the US Non-Farm Payrolls figure on Friday. Growth in the US labor sector has stagnated over the last several months. Should this Friday’s news come in below expectations, investors may shift their funds to safe-haven assets, which could result in the price of oil dropping.
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 daily chart’s Slow Stochastic has formed a bearish cross, indicating that downward movement could occur in the near future. This theory is supported by the Relative Strength Index on the same chart, which has crossed into overbought territory. This may be a good time for forex traders to open short positions ahead of a possible downward breach.