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Thursday, 28 Jul 2011
Economic Doomsday So Far Not Materializing
The value of safe-haven assets has been given a boost by a shift away from higher yielding assets this week, though the dollar has been receiving fewer of these gains than normal. What is noteworthy, however, is the lack of dire economic shifts as most politicians and media pundits have anticipated in their day-to-day posts and commentary. Should we be concerned or relieved?
USD - USD Pares Losses after Severe Downturn
The US dollar (USD) was seen trading mildly bullish at yesterday's close after a day of severe downturns in value. The value of safe-haven assets has been given a boost by a shift away from higher yielding assets, though the dollar has been receiving fewer of these gains than normal. What is noteworthy, however, is the lack of dire economic shifts as most politicians and media pundits anticipate in their day-to-day posts and commentary.
Data so far has inched traders into a position of market pessimism which has dropped the value of riskier assets while garnering support for the safe-haven currencies. Little news has emerged which put a dent in the amount of pessimism surrounding the forex market, particularly in the fragile United States and euro zone in spite of calls for such a move to be edging closer.
With a moderate news day expected today, traders are sure to see a surge in portfolio adjustments as volatility remains elevated. The US economy will be publishing several reports today, mainly on housing and employment. Should today's news disappoint, there is a possibility that more investment will get pushed towards safety, but causing further consternation for USD traders as sentiment is mixed. Traders will also want to keep an eye on euro zone economic news as it may impact risk sentiment during the morning sessions.
EUR - EUR Jumps against USD before Settling
The euro (EUR) was seen trading with largely bullish results yesterday as traders move into and away from riskier assets across the region. Against the US dollar (USD) the euro was seen trading bullish in late trading as shifts away from the greenback, due to uncertainty about a possible failure to lift the US debt ceiling, caused a stir in the foreign exchange market.
Euro zone stock markets were hit early this week by an attack in Oslo, Norway, last Friday in which a gunman set off a bomb in the city's center and opened fire at a kid's summer camp nearby. The knee-jerk flight from the region's investments pulled down on the EUR in earlier sessions but has so far been recovered by repatriating shifts.
On tap today, traders will witness the release of a moderately significant report on unemployment in Germany. Should the data reveal stagnation in jobs growth, we could see heftier flights to safety in the days and weeks ahead. This would likely push the value of the EUR lower over the long-haul as traders continue to flee risk in larger numbers.
AUD - Aussie Continues to See Mixed Results
The Australian dollar (AUD) was trading with mixed results versus its currency counterparts yesterday after data releases began to shift traders back into safety. The Aussie has been losing momentum these past few weeks as risk aversion becomes predominant in the global market. Fears surrounding the current debt ceiling negotiations in the US are also dragging on global economic outlook.
This movement has gouged the AUD against all of its currency rivals, especially against safe-havens like the US dollar (USD) and Japanese yen (JPY). Being tied to commodity prices could help lift the AUD in the near future as oil prices continue to soar, but general risk aversion is likely to push the currency lower as traders flee risk. Inflationary growth data yesterday helped the Aussie hold some of its value, though sentiment continues to show mixed directionality.
Oil - Crude Prices Steady amid Risk Aversion
Crude Oil prices held steady Wednesday as sentiment appeared to favor a downturn in global stocks should the US fail to lift its debt ceiling by August 2. Data releases out of Europe and the US last week are still driving many investors back into safe-haven assets as many reports suggested a surprise downtick in growth among global industrial output and consumer spending.
An expected jump in dollar values due to this week's risk averse environment has helped many investors ram up their short-taking positions on physical assets, but with the USD's gains not materializing, sentiment appears to have the price of crude oil holding steady. Should Crude Oil sentiment continue to flatten this week, oil prices may reach a decision point which forces a wide swing by week's end.
The EUR/USD has taken a step away from the edge after failing to get a close below its 200-day moving average and the price is testing the falling trend line from the May and July highs at 1.4450. Short term momentum is currently rising and break above this resistance line may find resistance at the peaks from July, June, and May at 1.4580, 1.4700, and 1.4940 respectively. However, a bearish tweezer candlestick pattern has formed on the daily chart from last week's highs on Thursday and Friday, strengthening the argument for the 3-month old resistance line to hold. Support is found at 1.4015, 1.3835, and 1.3780 from the rising trend line off of the June 2010 low.
After dipping as low as 1.5780 which is the 38% Fibonacci retracement level from the May 2010 to April 2011 move, Cable has broken above both the neckline from the head and shoulders pattern and the resistance line falling from the April and May highs. The pair has now found resistance at the previously broken trend line from the May 2010 low and now serves as initial resistance at 1.6360. A move above this line will likely go on to test the May high at 1.6545 though sterling bears may make a stand before the April high of 1.6745. To the downside support may come in where the neckline and the previous resistance line off the April and May highs intercept at 1.6190. Additional support is located at 1.6000 and the July low at 1.5780.
The reemergence of yen strength has taken the USD/JPY one step closer to its all-time low at 76.11. Falling stochastics on the monthly, weekly, and daily charts all point to additional declines in the pair. Initial support is found at 78.20 followed by the lower line from the falling wedge pattern from December 2008 which comes in at 77.50. A move higher may find resistance at 79.60 and 81.50.
An attempt to push the USD/CHF higher ran into resistance at 0.8270. Since failing to hold any gains the pair looks to test the most recent all-time low at 0.8080. Any attempt to move the pair higher will likely encounter resistance at 0.8270 and 0.8385 from the falling trend line off the February high. Relative value sellers of the pair may also be lurking at 0.8550.
The Wild Card
A moth long rally in crude oil prices from $90-100 has been capped at a falling resistance line from the May, June, and July highs. Today the resistance line comes in at $100. Forex traders should note a break above this line could test the next resistance at $104.50. Support is located at $93.50.