The safe-haven US dollar took losses against several of its main currency rivals yesterday, as increased optimism in the global economic recovery led to risk taking in the marketplace. As a result, both crude oil and gold were able to recover losses from earlier in the week. As markets get ready to close for the weekend, forex traders will want to pay attention to any developments in budget negotiations between US Congressional leaders. Any indication that an agreement is closer to being reached may result in additional gains for higher-yielding assets.
USD – Signs of Impending “Fiscal Cliff” Agreement Result in Dollar Losses
An increase in optimism that US Congressional leaders may soon reach a deal to avoid a series of automatic tax increases and spending cuts, also known as the “fiscal cliff”, caused the safe-haven US dollar to fall against several of its main currency rivals yesterday. Against the Swiss franc, the greenback fell close to 40 pips throughout the European session, eventually reaching as low as 0.9260. The GBP/USD gained some 35 pips during the mid-day session to trade as high as 1.6047, before a slight downward correction brought the pair to 1.6035.
Today, dollar traders will want to continue monitoring developments with regard to the “fiscal cliff” negotiations. Any indication that a deal is closer to being reached may lead to further losses for the greenback. Additionally, a speech from ECB President Draghi could generate some volatility in the marketplace. If the ECB President signals any improvements in the euro-zone economic recovery, risk taking could send the USD even lower.
EUR – Euro Benefits from Risk Taking in the Marketplace
The euro posted gains against its safe-haven currency rivals yesterday, following the release of a batch of positive US economic data which boosted optimism in the global economic recovery and encouraged risk taking. The EUR/JPY gained more than 40 pips during the European session to trade as high as 106.78. A slight downward correction brought the pair down to 106.65 by the beginning of evening trading. Against the US dollar, the common currency advanced more than 70 pips, eventually breaking above the psychologically significant 1.3000 level.
Today, several euro-zone news events have the potential to create volatility before markets close for the weekend. Euro traders will want to pay attention to a speech from ECB President Draghi, followed by the EU Unemployment Rate and CPI Flash Estimate. Better than expected data could lead to additional gains for the euro during mid-day trading. Furthermore, any progress in budget negotiations between US Congressional leaders could boost riskier currencies, like the euro.
Gold – Gold Partly Recovers from Earlier Losses
After falling by more than $30 an ounce earlier in the week, gold was able to stage a partial recovery during European trading yesterday amid an increase in investor risk taking. The precious metal advanced close to $8 an ounce during mid-day trading, eventually reaching as high as $1727.48, before a minor downward correction brought prices down to $1725.
As markets get ready to close for the weekend, gold traders will want to continue monitoring developments in the ongoing budget negotiations between US Congressional leaders. Any signs of an impending agreement to avoid the “fiscal cliff” could result in additional risk taking, which would send the price of gold higher.
Crude Oil – Crude Benefits From Positive US News
The price of crude oil was able to advance close to $2 a barrel yesterday, following the release of a batch of positive US news which led to speculations that American demand for oil would also increase. Crude eventually reached as high as $88.64 before a slight downward correction brought prices down to $88.30 during afternoon trading.
Today, a lack of significant US economic indicators means that oil prices are likely to be driven by euro-zone news. Traders will want to pay attention to a speech from ECB President Draghi. If he signals any improvements in the euro-zone economic recovery, oil may continue advancing throughout the day.
While the MACD/OsMA on the weekly chart appears close to forming a bearish cross, most other long-term technical indicators show this pair range trading. Taking a wait-and-see approach may be the preferred strategy here until a clearer picture presents itself.
The Bollinger Bands on the weekly chart are beginning to narrow, indicating that this pair could see a price shift in the coming days. Additionally, a bearish cross is close to forming on the same chart’s MACD/OsMA. Traders may want to open short positions for this pair.
The Williams Percent Range on the weekly chart has crossed over into overbought territory, indicating that this pair could see a downward correction in the coming days. In another sign of impending bearish movement, the Relative Strength Index on the daily chart appears close to crossing above the 70 level. Going short may be the wise choice for this pair.
While the daily chart’s Bollinger Bands are beginning to narrow, indicating that a price shift could occur in the near future, other long-term technical indicators are failing to provide clear signs about what direction the shift will be. Taking a wait-and-see approach may be the best option for this pair.
The Wild Card
The Slow Stochastic on the daily chart has formed a bullish cross, indicating that an upward correction could take place in the near future. Furthermore, the Williams Percent Range on the same chart has fallen into oversold territory. Forex traders may want to open long positions today ahead of possible upward movement.
© 2006 by FxYard Ltd
Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.