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Friday, 23 Dec 2011
Euro Continues to Struggle as Debt Concerns Loom
Despite starting Thursday off on a promising note, the euro managed to tumble against most of its main currency rivals as the euro-zone debt crisis continues to drive investors away from the currency. With analysts forecasting an increase in today's US New Home Sales figure over last month, it appears unlikely that the euro will reverse its recent bearish trend.
USD - Unemployment Claims Boost USD Ahead of Holiday Weekend
Yesterday's US Unemployment Claims gave the USD an added boost against its main currency rivals ahead of the holiday weekend. The latest unemployment figure came in significantly below analyst expectations at 364K, the lowest level since April 2008. The positive jobs report gave further incentive to investors looking for a safe haven outlet in the wake of the on-going euro zone debt crisis.
Turning to today, traders can expect further market volatility ahead of the Christmas holiday. Several US indicators, namely the Core Durable Goods Figure and the New Home Sales report may lead to further gains for the buck. In particular, the New Home Sales figure will likely play a prominent role in tomorrow's trading session. Along with employment, home sales were one of the main contributing factors to the US financial crisis. Should the figure come in at its expected 314K, dollar traders may be able to enjoy their holiday that much more.
EUR - EUR Unable to Recoup Losses in Thursday Trading
Despite starting the day off on a positive note, the euro was unable to maintain its bullish trend yesterday as a number of factors caused investors to abandon the currency. While the ECB decision to institute a three-year refinancing operation boosted hopes that the euro-zone debt crisis may be easing, negative rumours about the actual of state of the European economies brought the currency back down. The news brought the EUR/USD dangerously close to the psychologically significant 1.300 level.
In addition, positive US news caused traders to redirect their money to the more stable greenback ahead of the Christmas Holiday. Analysts are warning that the euro is unlikely to rebound ahead of the New Year, and there is a chance that the currency will maintain its downward slide well into 2012.
GBP traders should also be prepared for continued bearishness, as sterling has been closely mirroring the euro in recent days. As a whole, investors seem less and less interested in betting on riskier assets like the euro and pound. This is particularly significant for Forex traders, as the low liquidity environment in the market right now can cause even small trends to become exaggerated.
JPY - JPY Continues to Drop against USD
The yen continued to fall against the dollar throughout the day yesterday, as investors continue to shift their funds toward safe haven assets. Negative news out of Europe has continued to boost the dollar, often at the expense of the Japanese currency. The USD/JPY hit a three-week high yesterday, although the pair seems to have now stabilized and may even see a downward trend ahead of the Christmas holiday.
Against the euro, the yen has fared significantly better. The EUR/JPY pair has dropped very close to the psychologically significant 101.00 level. Should the pair breach that support line, further downward movement may take place.
Turning to today, the low liquidity environment in the marketplace means that current trends will likely maintain. That being said, traders will want to pay attention to the US news set to be released today. Any surprise results will likely impact yen pairs.
Crude Oil - Oil Prices Jump amid Possible Increase in US Demand
Crude oil experienced a hectic trading day yesterday, as improvements in the US economy led to forecasts that American demand for the commodity may increase in the near future. Analysts were also quick to add that demand for crude oil typically increases during the cold winter months in the United States.
Bullish sentiment was somewhat offset by the negative news coming out of the euro-zone. The on-going debt crisis continues to weigh down on crude prices. Still, with the commodity likely to breach the psychologically significant $100 a barrel line, traders may want to go bullish ahead of the Christmas holiday.
On a weekly basis the EUR/USD broke some important technical barriers, closing below the rising trend line from the January and October lows. The weekly close 1.3045 was also in-line with the 61% Fibonacci retracement from the 2010-2011 bullish trend. While weekly stochastics are currently oversold the monthly stochastics may have room to run lower. The January low of 1.2870 is the near-term support with additional support coming in at 1.2665 from the monthly chart off of the 2008 and 2010 lows. Resistance is back at 1.3140 and the 20-day moving average of 1.3275, followed by the December high of 1.3550.
Sterling has consistently been sold at previous resistance levels and with falling weekly and monthly stochastics this strategy could remain intact. Initial support is found at Friday's high of 1.5560 and the pair may have scope back to the range between the 55-day moving average at 1.5740 and the late November high of 1.5775. Any rally could be capped at 1.5890 from the falling trend line off of the August and October highs. The test for sterling shorts will come at the October low of 1.5270. A break here may find support at the trend line stemming from the January 2009 low which is found at 1.5100.
The USD/JPY is encroaching on its trend line from the 2007 high which comes in at 78.30. Weekly and monthly stocahstics are both moving higher and a break above the trend would expose the post-intervention high of 79.50 and the August high of 80.20. A failure to make a significant close above the trend line could have the USD/JPY testing the December low of 77.50 and the November low of 76.55.
Last week's break above the 0.9330 resistance opens the door to this year's high of 0.9782 as well as the December high of 1.0065. The falling trend line from the 2003 trend line comes in at 1.1165 and makes for a long term resistance level. To the downside 0.9330 will now act as a support followed by the late November low of 0.9065 and the 200-day moving average at 0.8925.
The Wild Card
The EUR/JPY is a textbook example of how broken support levels turn into resistance. The November low of 102.50 was breached by a swift move lower though the EUR/JPY slowly retraced back to this level. Yesterday the pair ran into selling pressure at the same price. Forex traders should now look to the supports at 100.75 and the 2010 low of 99.90.