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Wednesday, 1 Dec 2010

Euro Tumbles and Yen Soars Amid Concern Sovereign-Debt Crisis Will Broaden

The euro continued to weaken on all fronts during yesterday's trading session amid concerns that Portugal and even Spain will eventually seek financial rescue as well. This has also boosted risk-aversion, and supported demand for safe-haven assets such as the yen. As a result the EUR/JPY cross is now trading near an 11-week low.

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Economic News

USD - EUR/USD Drops to the 1.2970 Level

The U.S. dollar rallied against the euro on Tuesday's trading session. The dollar gained over 170 pips vs. the euro, and the EUR/USD pair fell to the 1.2970 level. However, the dollar tumbled against the Japanese yen, and saw a volatile session against the British pound.

The dollar rallied today vs. the euro due to speculation Europe's sovereign-debt crisis will broaden. The current concerns are that Portugal and Spain might be next in line to seek financial rescue from the euro-zone. Standard & Poor's threatened to cut the credit rating of Portugal, boosting concerns for yet another debt crisis.

In addition, the U.S. Consumer confidence report was published yesterday. The report showed that confidence among U.S. consumers rose in November to the highest level in five months. The index advanced to 54.1 from a revised 49.9 in October, beating forecasts for 52.7. The positive data supports optimism that the American economy is recovering, and even at a faster pace than estimated by analysts.

As for today, the ADP will release its forecast for the U.S. Non-Farm Employment Change indicator. The ADP estimates that change in the number of employed people during the previous month, excluding the farming industry. Its forecast is considered to be quite reliable, and thus tends to have a large impact on the market. A positive data might boost the dollar further against the euro.

EUR - Euro's Free-fall Continues amid Sovereign-Debt Concerns

The euro saw another bearish session during Tuesday's trading. The euro fell over 170 pips against the U.S. dollar, and the EUR/USD pair reached its lowest level in two months. In addition, the euro fell about 100 pips against the British pound and about 200 pips vs. the Japanese yen.

The euro plunged yesterday on concerns that European nations will face difficulties to raise funds due to the region's debt crisis. In addition, Standard & Poor's said it may cut Portugal's credit ratings on concern the government has made too little progress on initiating economic growth to offset the fiscal drag from scheduled 2011 budgetary cuts. It appears that the Ireland financial rescue plan has left the market a bit suspicious about other European economies, especially Portugal and Spain. It seems that until these economies will prove to have the abilities to handle their debts, the euro might face further bearishness. Traders should also take under consideration that if Standard&Poor's will eventually decide to cut Portugal's credit ratings, this might accelerate the euro's free-fall.

Looking ahead to today, traders are advised to follow all updates regarding the sovereign debts crisis, as this seems to be the most urgent matter for the near future. In addition, traders are advised to follow the German Retails Sales release, which is scheduled for 07:00 GMT; positive data might help to correct some of the euro's losses.

JPY - Yen Rallies against the Majors As Risk-Aversion Elevates

The Japanese yen rose against all its major counterparts during yesterday's trading session. The yen gained about 100 pips vs. the U.S. dollar, and about 200 pips against the euro. The EUR/JPY cross fell to an 11-week low as a result. The yen also gained about 80 pips vs. the British pound.

The yen strengthened on Tuesday's trading as risk-aversion surged due to concerns that Europe's sovereign-debt crisis will broaden. It is now pretty clear that the Ireland financial bailout failed to reassure the market and yesterday, Portuguese, Italian and Spanish government bonds declined, signing that investors have concerns regarding the nations' debts. This has increased demand for safe-have assets, and as a result boosted the yen. In addition, speculations that China will take more action to cool its economy have also supported the yen. Analysts estimate that China will have to hike interest rates soon in the attempt to reverse the excessive liquidity in the system.

As for today, traders are advised to follow the updates from Europe regarding the sovereign-debt crisis, as this issue seems to have the largest impact on the market at the moment. Traders are also advised to follow the leading economic releases from the U.S, especially the ADP's Non-Farm Payrolls forecast.

Crude Oil - Crude Oil Falls Below $83.60 a Barrel

Crude oil fell for a second day and reached as low as $83.55 a barrel. Crude began yesterday's trading session around $85.80 a barrel. Yet the commodity fell over 200 pips, and a barrel of oil is currently trading near $84.00.

Crude oil prices fell yesterday on concern Europe's debt crisis may damage economic growth and as a result will decrease demand for fuel. In addition, the U.S. dollar gained to 10-week high against the euro, further weakening the dollar-dominated commodity. It currently seems that as long as the high uncertainty regarding European debts will remain, crude prices could drop lower, and might even reach $80 a barrel.

Looking ahead to today, traders are advised to follow the leading economic news from the U.S. and the euro-zone, especially regarding the European debt-crisis, as this is likely to have the largest effect on oil trading. In addition, traders should follow the U.S. Crude Oil Inventories report, which is scheduled for 15:30 GMT, as this release tends to have an instant impact on the market.

Technical News


There is a very distinct bearish channel formed on the 4-hour chart, as the pair is now floating in its middle. In addition, as both the MACD and the RSI on the daily chart continue to provide bearish signals, the pair looks to drop further, with potential to reach the 1.2920 level.


For the past couple of weeks the cable has been falling sharply, from the 1.6290 level to as low as the 1.5470 level. Nevertheless, a bullish cross on the daily chart's Slow Stochastic suggests that a bullish correction might be impending. Going long with tight stops might be the preferable strategy today.


The pair has recently peaked at the 84.35 level; however it is dropping ever since. Currently, a bearish cross of both the Slow Stochastic and the MACD on the 1-day chart indicate that the bearish momentum has more steam in it. Going short might be the right choice today.


The pair has been trading within a restricted range over the past week, between the 0.9920 and 1.0050 levels. Currently, as the RSI has dropped below the 70-line, it appears that a bearish move might be impending, with a key-target level of 0.9920.

The Wild Card


After bottoming at $1,350 an ounce, gold prices are once again pushing up, and gold is now trading near $1,390 an ounce. In addition, as all oscillators on the 4-hour chart are pointing up, it appears that the bullish trend could prolong today. This might be a great opportunity for forex traders to join a very popular trend.

Current Time: 12/01 17:57 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
18:45USD+ FOMC Member Evans Speaks---3
00:30AUD+ RBA Gov Stevens Speaks---5
00:50JPY+ Monetary Base y/y32.5%35.2%-1
01:00NZD+ ANZ Commodity Pricesm/m6.9%--1
01:30AUD+ GDPq/q0.2%0.7%-5
02:00EUR+ FOMC Member Kohn Speaks---3
08:00EUR+ German Retail Salesm/m---3
09:00EUR+ Spanish Unemployment Change82.3K--3
09:30GBP+ Halifax HPI---3
10:30GBP+ Construction PMI58.858.4-5
11:00EUR+ CPI Flash Estimate y/y0.1%0.2%-3
11:00EUR+ Core CPI y/y1.1%1.1%-3
11:00EUR+ PPI m/m-0.3%-0.4%-1
14:10USD+ FOMC Member Lockhart Speaks---3
14:30USD+ Fed Chair Yellen Speaks---5
14:30USD+ Revised Nonfarm Productivityq/q1.6%2.2%-3
14:30USD+ Revised Unit Labor Costsq/q1.4%1.1%-1
15:15USD+ ADP Non-Farm Employment Change182K191K -5
16:00CAD+ BoC Rate Statement---5
16:00CAD+ Overnight Rate0.50% 0.50%-5
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