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Wednesday, 24 Nov 2010
Euro Plunges on Concerns Irish Crisis Might Spread
After Ireland sought financial rescue on Sunday, expectations were that this should calm the tension in European markets, and should support the euro. However, this has merely revived concerns that other European nations, especially Spain and Portugal, will soon seek for similar aid. As a result, the euro falls on all fronts.
USD - Better Than Expected GDP Data Boosts the Dollar
The U.S. dollar rallied against most of the major currencies on Tuesday. The dollar gained over 200 pips vs. the euro, and the EUR/USD dropped to a two-month low as a result. The dollar gained about 200 pips against the British pound as well.
The dollar rallied on Tuesday as reports showed that the U.S. economy grew at a 2.5 percent annual rate in the third quarter of 2010, more than estimated. The U.S. gross domestic product rose as companies increased shipments abroad and Americans boosted their spending, signaling that the economy is recovering at a faster pace than expected. Nevertheless, the dollar erased some of its gains during the evening trading session, following an unexpected fall in Existing Home Sales. Purchases of existing homes dropped more than expected in October to 4.43 million, from 4.53 million in September, failing to reach expectations for 4.51 million sales. The U.S. housing sector continues to provide unsatisfying figures, and as a result puts bearish pressure on the greenback.
As for today, several significant economic releases are expected from the U.S. Traders are advised to focus on the Core Durable Goods Orders, Unemployment Claims and the New Home Sales reports, as these are likely to have a large impact on the dollar's trading. If the end results will provide further indications that the economy is expanding, the dollar might see another bullish session.
EUR - Euro Falls on Concerns Irish Crisis Will Spread; Gold Soars in Response
The euro fell on all fronts during yesterday's trading session. The euro fell over 200 pips against the U.S. dollar, marking a two-month low. The euro also dropped about 100 pips vs. the British pound and about 200 pips against the Japanese yen.
The euro dropped on Tuesday as German Chancellor Angela Markel commented that the currency is in an exceptionally serious situation following Ireland's request for financial aid. The euro is falling on concern that Spain and Portugal might be in need for a rescue package as well, as the cost of insuring the nations' bank debt surges. The true worry is that the euro-zone will not be able to sustain its debts, and this puts further bearish pressure on the euro, and boosts risk-aversion.
As a result of the low risk-appetite in the market, investors turned to alternative assets, such as gold. Gold is considered to be an appealing investment in times of high-uncertainty, and recent Irish turmoil has ended gold's bearish correction from the past week. As a result gold peaked at $1,382 an ounce yesterday.
Looking ahead to tomorrow, traders are advised to follow every update regarding the Irish debt crisis, and its repercussions on the euro-zone. Special attention should also be given to the German Business Climate release. Positive data from the German economy might ease investors' concerns, and as a result erase some of the euro's losses.
JPY - Yen Rallies as Risk Aversion Increases
The Japanese yen rose against most of its major counterparts during Tuesday's trading. The yen gained about 200 pips vs. the euro, and the EUR/JPY pair fell to a two-month low. The yen gained about 200 pips against the British pound and about 100 pips against the U.S. dollar as well.
The yen rallied yesterday as North and South Korea exchanged artillery fire, and enhanced the already high uncertainty in the market. This has boosted demand for safe-haven currencies and the yen surged as a result. Adding to the equation the Irish turmoil and its possible effect on the entire region, the market seeks relatively safe assets, and the yen qualifies for the category. It currently seems that as long as uncertainty continues to dominate markets, the yen might see further bullishness.
As for today, traders are advised to follow all updates regarding the Korean tension and the Irish debt crisis, as these issues are likely to have the largest impact on yen's trading. Traders should also follow the Japanese Trade Balance release, as a positive end result might support the yen further against its major rivals.
Crude Oil - Crude Oil Falls amid European Debt Concerns
Crude oil began yesterday's trading session with a sharp fall to $80.30 a barrel from $82.10 in morning trading. However crude managed to erase most of its losses and is currently trading near $81.60 a barrel
Crude oil declined yesterday on concerns Europe's debt will damage the region's economic growth, and will decrease demand for energy. In addition, speculations that the Irish turmoil will affect other European economies, such as Spain and Portugal, have also pushed oil prices downwards. However crude managed to erase most of its losses on expectations U.S. Crude Oil Inventories report will show a further decline in crude inventories.
Looking ahead to today, traders are advised to follow the leading economic publications from the U.S. and the euro-zone, as these tend to have the largest impact on oil trading. Traders should also follow the U.S. Crude Oil Inventories release, which is scheduled for 15:30 GMT, as this report tends to have an instant impact on the market.
The EUR/USD pair dropped sharply during that past couple of days, and is currently trading near a two-month low. In addition, a bearish cross on the daily chart's Slow Stochastic indicates that the bearish movement has more steam in it. Going short might be the right decision today.
The pair's bearish trend gradually continues, as the cable is now trading near the 1.5820 level. Currently, both the RSI and the MACD on the 4-hour chart are providing bearish signals, indicating that the bearish movement might continue today, with a key-target level of 1.5750.
The USD/JPY pair is slowly rising during the past couple of weeks, and yesterday the pair reached as high as the 83.83 level. However, a bearish cross on the daily chart's Slow Stochastic suggests that a bearish correction might be in place. Going short with tight stops might be the preferable strategy today.
The USD/CHF pair is trading within a restricted range for the past week. Currently, after the pair has failed to breach through the upper boarder of the range, a bearish correction might be impending, with potential to reach the 0.9850 level.
The Wild Card
After a week of falling prices, gold began correcting losses since the beginning of the week, and is currently trading near the $1,375 level. The MACD on the 4-hour chart and the Slow Stochastic on the 1-day chart provide bullish signals, indicating that the bullish trend might extend today. This might be a great opportunity for forex traders to join a very popular trend.
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