Less than expected German factory orders and worries over the Irish fiscal situation had traders bidding equities lower and buying into safe haven assets as USD/JPY and the EUR/CHF fell to new lows.
Economic News
USD – Greenback Rises on Safe Haven Buying
The dollar put in a strong showing for a second day versus most of the major currencies. Traders were quick to buy the dollar following a Wall Street Journal article that highlighted European banks’ exposure to risky government bonds that were previously not reported in this summer’s European banking stress tests. While the article did not bring to light any new information that was not previously known in the FX market, it did refocus the spotlight on weakness in the European financial system.
Less than expected German factory orders hurt risk sentiment in the market. The change in the in the total value of new purchase orders from manufactures fell by 2.2% over the previous month. Expectations were for an increase of 0.6%.
The lone data release from the US will be the Fed’s Beige Book, set to be released at 18:00 GMT. The Fed’s analysis of the markets helps the central bank set policy decisions and interest rate levels.
The EUR/USD has declined for the past two days, pulling back into the symmetrical triangle pattern that had formed. Support is found at the rising lower leg of the triangle pattern at a price of 1.2660 followed by 1.2580.
EUR – European Banking Fears Drops Euro
A lack of economic data from the US had traders looking to Europe for signals on the direction of the major currencies. A Wall Street Journal article influenced traders and reignited fears of the European fiscal crisis. Also weak German factory orders did little to calm traders’ nerves about the state of the euro zone economy.
Fiscal troubles in Ireland also hurt the euro. The Irish Finance Minister said he does not expect Ireland to seek emergency loans from the EU and Ireland will resume its regular capital raising activities from the public debt markets. However, the market reaction did not emphasize this statement. The spread between Irish government debt and safe haven German debt rose to an all-time high.
Further signs of traders’ aversion to risky assets were apparent as the DAX was down 0.6% and the euro was lower versus the major currencies. The EUR/USD fell to 1.2680, from an opening day price of 1.2806. The EUR/CHF fell to a fresh all-time low at 1.2808.
Significant data releases are on the British economic calendar for today. Traders will be looking at the Halifax HPI and the monthly manufacturing production numbers. Better than expected data may help support the weakening pound. Support and resistance levels for the GBP/USD are found at 1.5320 and 1.5490.
JPY – Interest Rate Decisions from Japan and Australia
As expected, both the Bank of Japan (BOJ) and the Royal Bank of Australia (RBA) left interest rates steady at 0.10% and 4.50% respectively.
The BOJ stated the bank is continually monitoring the outlook for economic activity and did not change its economic forecasts. The BOJ also sees a continued moderate economic recovery in the Japanese economy.
The RBA also held its base rate steady while the accompanying rate statement indicated that policy is appropriate for the time being but it did highlight some uncertainty in the market. Also newly elected Prime Minister Julia Gillard successfully formed a minority government.
Continued European banking worries touched off a bout of safe haven buying. The yen was one of the benefactors in yesterday’s trading. The USD/JPY dropped to a 15-year low at 83.50 before finally closing at 83.79. Should safe haven buying continue, the USD/JPY could push its all-time low at 79.70.
OIL – Recovery Fears Weaken Spot Crude Oil
The price of spot crude oil fell during yesterday’s trading following renewed concerns over the global economic recovery. This time around it was Europe that sparked fears of a weakened banking system and fiscal concerns in Ireland.
Spot crude oil prices fell to $73.80, after opening the day at $74.04.
Also affecting the price of spot crude oil was a strengthening dollar. As the dollar appreciates, this makes it more expensive for holders of foreign currencies to by crude oil.
Traders may have been influenced by an explosion at a Mexican government owned oil refinery near the US Mexico border. This sparked worries over short term supplies and helped to reduce the overall drop in spot crude oil prices.
The weekly crude oil inventories release from the US Department of Energy Administration is scheduled for Thursday due to the shortened holiday week in the US. Expectations are for an increase of 300K barrels.
Support and resistance for spot crude oil prices come in at $71 and $75.70
Technical News
EUR/USD
The pair has recorded much bearish behavior in the last 2 days. However, the technical data indicates that this trend may reverse anytime soon. For example, the daily chart’s Stochastic Slow signals that a bullish reversal is imminent. An upward trend today is also supported by the RSI. Going long with tight stops may turn out to pay off today.
GBP/USD
The cross has been dropping for the past month now, as it now stands at the 1.5380 level. However, the daily chart’s RSI is already floating in the oversold territory indicating that a bullish correction might take place in the nearest future. Going long with tight stops may turn out to be the right choice today
USD/JPY
The USD/JPY has gone increasingly bearish yesterday, and currently stands at the 83.47 level. The daily chart’s Slow Stochastic supports this currency cross to fall further today. However, the hourly chart’s Stochastic Slow signals that a bullish reversal will take place today. Entering the pair when the signs are clearer seems to be the wise choice today.
USD/CHF
This pair’s sustained downward movement has finally pushed its price into the over-sold territory on the daily chart’s RSI. Not only that, but there actually appears to be a bullish cross on the Slow Stochastic pointing to an imminent downward correction. Forex traders have the opportunity to wait for the upwardward breach on the hourlies and go long in order to ride out the impending wave
The Wild Card
Oil
Crude Oil is displaying significant bearish signals after yesterday’s failed breach of the $75 price level. The hourly chart has the pair trading in the overbought zone on the pair’s Relative Strength Index, indicating a possible move lower. The chart also shows a bearish cross has formed on the Slow Stochastic Oscillator that may support this downward move. Forex and commodity traders may want to be short on Crude Oil today as a significant price move may be in the making.
Written by Forexyard.com