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Wednesday, 8 Feb 2012
EU Debt Crisis Continues to Fuel Risk Aversion
The euro-zone debt crisis continued to fuel risk aversion in the market place yesterday, as poor news briefly brought the EUR/USD pair below the 1.3100 level. The pair staged a recovery later in the European session, after it was revealed that Greek leaders had begun finalizing a debt swap deal. Today, traders will want to continue monitoring the euro-zone situation, especially as it is becoming clear that Portugal will soon need a bailout to avoid defaulting on its debt.
USD - USD/JPY Continues to Make Gains
The US dollar extended its recent bullish run on the Japanese yen yesterday, with the pair reaching as high as 76.85 before staging a slight reversal. In addition to a positive US jobs report from last week, the pair's ascent was attributed to reports that the Bank of Japan (BOJ) secretly intervened in the marketplace late last year. While the greenback is still fairly close to the lows it hit against the yen last week, it appears that fears of another BOJ intervention have subsided for now.
Turning to today, USD traders will want to continue monitoring the euro-zone to gauge the level of risk taking in the marketplace. While positive news regarding the Greek debt swap talks is likely to boost the EUR/USD, analysts are warning that additional worries in the euro-zone could limit how high the pair moves. The same can be said for the AUD/USD. While the dollar hit a six-month low against the Aussie during yesterday's trading, any negative euro-zone news could cause the current trend to reverse.
EUR - EUR Moves Up amid Hopes of Greek Deal
The euro staged an upward reversal late in European trading yesterday, after it was revealed that Greek leaders had begun finalizing the details of steps it is willing to take to reach a debt swap deal with its creditors. Both the EUR/USD and EUR/JPY shot up close to 80 pips after the news was released. At the same, analysts were quick to warn that the common currency's gains may be temporary as other euro-zone news is likely to impact risk taking.
Highlighting Greece's delicate position in the euro-zone, rumors began circulating yesterday that the country's chances for exiting the euro-zone have increased. In addition, even if Greece finally succeeds in reaching a debt-swap deal, traders will want to note that Portugal is likely next to need a bailout to avoid defaulting on its debt. Either way, traders should know that the euro crisis is far from over.
AUD - RBA Rates Decision Boosts Aussie
The Australian dollar saw significant gains throughout the trading day yesterday, following news that the Reserve Bank of Australia (RBA) would leave national interest rates at their current level of 4.25% for the time being. Analysts had originally forecasted the RBA to reduce interest rates to 4.00%. The move resulted in the AUD extending its recent gains against most of its main currency rivals, including the USD, EUR and JPY. The AUD/USD hit a six-month high at 1.0823 before staging a reversal, as analysts warned that the pair still had room to move up.
Turning to today, traders will want to continue monitoring news out of the euro-zone, which is likely to determine the level of investor risk-appetite. Positive data is likely to boost currencies like the Aussie. At the same time, fears that Portugal will be the next euro-zone country to require a bailout may limit any gains.
Crude Oil - Crude Oil Drops below $96 amid Risk Aversion
The price of crude oil continued to drop yesterday, as the Greek debt-crisis continued to fuel risk aversion in the markets. The commodity eventually dropped below the $96 a barrel level before staging a slight upward correction late in the European session. Analysts are warning that, if the current trend continues, the price of oil could drop to around the $94 a barrel level before the end of the week. At the same time, there are a number of factors at play that could cause the commodity to unexpectedly spike.
Traders will want to watch out for any escalation in the current situation in the Middle East. Specifically, any increase in tensions between the US and Iran over Iran's nuclear program will likely cause the price of oil to spike. Additionally, any positive euro-zone developments may lead to an increase in risk taking which could boost the value of oil.
Technical indicators are currently mixed for this pair. While the weekly chart's Relative Strength Index is right around the 30 level and oversold, a bearish cross has formed on the daily chart's Stochastic Slow, meaning that downward movement could occur in the near future. Traders may want to take a wait and see approach for this pair until a clearer picture presents itself.
Most technical indicators show that this pair is currently overbought and may see a downward correction in the near future. The daily chart's Stochastic Slow has formed a bearish cross, while the Williams Percent Range on the same chart is above the -20 level. Going short may be a wise choice for the near future.
Technical indicators on the daily chart show this pair in the oversold zone, meaning that upward movement is possible in the near future. A bullish cross is forming on the MACD/OsMA, while the Williams Percent Range is hovering close to the -80 level. Going long may be a wise choice for the pair.
The Bollinger Bands on the weekly chart are narrowing, indicating that a price shift is likely to occur in the near future. The Relative Strength Index (RSI) on the same chart is hovering close to the 70 level, which typically means that a downward correction is going to take place. Traders will want to pay attention to the RSI. If it crosses the 70 line, a bearish correction may take place.
The Wild Card
The daily chart's technical indicators are showing that this pair could see a downward correction in the near future. A bearish cross is currently forming on the Stochastic Slow, while the Relative Strength Index is close to crossing the 70 line. Forex traders will want to watch the daily indicators for signals ahead of a possible downward breach.