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Wednesday, 5 May 2010
Greek Debt Concerns Take Heavy Toll on EUR
Analysts point out the apparent doubts investors have over the ability of the Greek bailout to perform its task well enough to actually prevent the country from falling into default. Since financial and employment woes seem to be mounting in Europe, uncertainty has gripped most equity markets, resulting in a mad dash to safety. The USD has been the primary outlet for this risk aversion, and may continue to be so for the remainder of this week.
USD - EUR/USD Drops Below $1.30 for First Time Since April '09
Forex traders involved in US Dollar trades were no doubt shocked yesterday by the sudden leaps and bounds made by the greenback throughout the trading day. Most analysts are explaining this occurrence on the massive surge in risk aversion which entered the market this week.
Against the Canadian Dollar, the greenback jumped back above parity and is currently trading at 1.0250. The EUR suffered a severe setback, with the EUR/USD dropping below 1.3000 for the first time since April 2009. The pair is currently trading near 1.2950.
Analysts point to the apparent doubts investors have over the ability of the Greek bailout to perform its task well enough to actually prevent the country from falling into default. Since financial and employment woes seem to be mounting in Europe, uncertainty has gripped most equity markets, resulting in a mad dash to safety. The USD has been the primary outlet for this risk aversion.
As such, the markets appear to be trading in what is called abnormal market conditions. What this means is that positive American economic data may actually put downward pressure on the Dollar instead of upward pressure.
The simple explanation is that the USD's recent strength is a result of investor concern regarding other assets, but if positive figures show growth in various aspects of the economy, investors may feel safe in pulling some funds out of safe-havens like the greenback and putting them back into stocks or other riskier assets
EUR - Greek Woes Weigh Heavily on EUR; Hits 1-Year Low vs. USD
Persistent concerns regarding Greek sovereign debt has finally begun to take a serious toll on the 16-nation single currency. The Euro witnessed drastic losses against the majority of its currency counterparts in Tuesday's trading. Dropping below 1.30 against the USD for the first time in over a year, and falling to 0.8550 against the British Pound for the first time since last August, the EUR seems a little worse for wear.
Pessimism seems to be running market sentiment about the EUR for the moment. Even with the passage of a bailout plan for Greece, most investors worry that it won't be enough to prevent the crisis from spreading to the other parts of Europe which are also experiencing weakness.
This includes countries such as Ireland, Italy and Spain. Spain's unemployment rate specifically, has reached above 20% recently, and some statistics even put the unemployment for those between the ages of 21 and 45 closer to 40%. The offsetting strength of Germany is likely not enough to spur confidence among investors interested in Europe.
Since Europe is largely absent from the economic calendar today, it isn't likely that the EUR will experience any major rebound without positive data. Traders should, however, pay close attention to the American data releases since a positive result could convince traders to pull some funds away from safe-havens and back into riskier assets.
JPY - USD/JPY at 1-Month High
The US Dollar was able to make strong gains against the Japanese Yen, despite both currencies being ample safe-havens from market uncertainty. The JPY was able to gain in value versus many of its primary rivals, and could continue doing so if market conditions remain where they are.
The JPY sunk versus the greenback with the USD/JPY pair currently trading at a 1-month high of 94.71. However, the Yen did begin to experience buying pressure as it approached this price level. Most indicators point to a downward correction of the pair today, but fundamentals from the United States are likely going to be the driving force in the market today.
Crude Oil - Oil Prices Plunge More Than $4 a Barrel!
It is no surprise that commodities would drop sharply following yesterday's sudden surge in the value of the US Dollar. The price of Spot Crude Oil alone dropped over $4.00 a barrel to trade at $82.50 in this morning's early hours. The question still remains as to whether market forces resulting from speculation about supply shortages will be enough to correct the price back up again towards $86 and beyond.
A commodity plunge may have actually been overdue. The Dollar has been gaining steadily this past week, but commodities have seen very little corresponding sell pressure, as should be expected. In the case of Gold prices, traders actually witnessed a rise in value commensurate with the gains being made by the buck, which seems counterintuitive to savvy commodity traders. We may see commodity prices continue their downward plunge if positive news doesn't reintroduce a level of risk back to the market.
Most technical indicators show this pair in oversold territory. The Relative Strength Index (RSI) on the daily chart is well below the lower support line. Furthermore, the price ticks on the 8-hour chart are significantly below the lower Bollinger Band. Going long may be a smart strategy for traders today.
The Bollinger Bands on the daily chart show this pair trading well into oversold territory, indicating a bullish correction may be imminent. The Relative Strength Index (RSI) on the 4-hour chart lends support to this theory. Traders are advised to go long with tight stops today, as the pair may reverse course soon.
The Bollinger Bands on the daily chart show this pair approaching overbought territory, indicating a bearish correction could occur today. That being said, most other technical indicators show the pair currently trading in neutral territory. A wait and see approach may be the best option for today.
Practically every technical indicator available shows this pair trading well in overbought territory. These include the Bollinger Bands on the 4-hour chart, the Stochastic Slow on the 4-hour chart and the Relative Strength Index (RSI) on the daily chart. Going short with tight stops is the advised strategy for today, as a downward correction may be imminent.
The Wild Card
The Stochastic Slow shows a bearish cross forming below the lower support line on the 4-hour chart, indicating an upward correction may be imminent. This theory is supported by the Bollinger Bands on the daily chart. The price tickets are currently below the lower band, which typically indicates a bullish move will occur in the near future. Forex traders are advised to go long with tight stops today.