Sentiment across the euro zone has turned negative, with many analysts and economists expecting moves towards safety by traders this week. Any more bearishly-leaning news out of any major global economy will likely pull down on the EUR even further as investors flee risk. With several European nations on holiday today, liquidity will likely be kept to a minimum, however, helping the EUR stave off intensely deep declines.
Forex Market Trends
| EUR/USD | GBP/USD | USD/JPY | USD/CHF | AUD/USD | EUR/GBP | |
| Daily Trend |  |
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| Weekly Trend |  |
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| Resistance | 1.4700 | 1.6745 | 81.80 | 0.8550 | 1.0800 | 0.9150 |
| 1.4450 | 1.6550 | 80.20 | 0.8200 | 1.0570 | 0.9080 | |
| 1.4400 | 1.6475 | 78.50 | 0.8080 | 1.0390 | 0.8880 | |
| Support | 1.4050 | 1.6090 | 76.25 | 0.7800 | 0.9925 | 0.8760 |
| 1.3945 | 1.6000 | 0.7590 | 0.9700 | 0.8650 | ||
| 1.3875 | 1.5935 | 0.9530 | 0.8610 |
Economic News
USD – US Dollar to Rise if Stocks Continue Decline
The US dollar (USD) may be seen trading mildly bullish Monday morning if traders see the global stock market persist in its decline. Although the value of US credit was downgraded, investors have little place else to move their troubled assets outside of US Treasuries. The downturn in the stock market last week has played into the strength of the US economy: its traditional store of value.
Though analysts view the downgrade as overall bearish for the USD, a sharp downturn was held in check by a continued purchase of bonds by European investors. Similar declines and ratings downgrades of several European peripheral nations have made the USD and gold all the more attractive as valued safe-havens.
As for this week, the US economic releases will focus mostly on housing and consumer inflation. Today’s publication of TIC’s Long-Term Purchases report will coincide with a housing index released an hour later at 15:00 GMT. Liquidity will likely be kept more to a minimum in today’s early trading as several European banks close in observance of Assumption Day. French and Italian liquidity will be absent, but Japanese data may offset the lower volatility. Traders will want to pay close attention to today’s American data.
EUR – EUR Mixed as Periphery Struggles with Debt
The euro (EUR) was seen trading with mixed results this morning following pessimistic reports on euro zone debt woes. Against the US dollar (USD) the euro was trading somewhat bearish in early morning hours Monday as the greenback moved upward against all currency rivals. The euro, however, does not appear in a position to capitalize on the gains being seen elsewhere; its structural weaknesses are gouging its value worldwide.
Traders are looking for a way to balance a renewal of risk aversion with continued shakiness in global markets. A mildly pessimistic sentiment towards investing in the US dollar at the moment, due to the S&P downgrade, has many investors on edge. An embattled euro zone, fending off market bears amid turmoil in its peripheral nations, also looks to be losing ground in financial markets as safe haven assets such as the Swiss franc (CHF) and Japanese yen (JPY) make gains; though central bank interventions in Japan may offset the JPY’s gains.
Sentiment across the euro zone has turned negative, with many analysts and economists expecting moves towards safety by traders this week. Any more bearishly-leaning news out of any major global economy will likely pull down on the EUR even further as investors flee risk. With several European nations on holiday today, liquidity will likely be kept to a minimum, helping the EUR stave off intensely deep declines.
JPY – JPY Bullish as Speculators Anticipate BOJ Intervention
The Japanese yen (JPY) was seen trading moderately higher versus most other currencies this morning as its value as an international safe haven continues to push its value bullish. Being linked to international risk sentiment, the yen has experienced an expected uptick during a period when shifts away higher yielding assets became prominent. The JPY has been experiencing several long strides lately from the various shifts into riskier assets.
The latest moves of the JPY are causing some concerns, however, as many speculators are anticipating another round of intervention by the Bank of Japan (BOJ). A strengthening yen has benefits for the buying power of the island economy, though its dependence on exports makes a strong yen unfavorable for longer-term growth in Japan’s current financial model. Another round of intervention may become more necessary if this morning’s GDP figures show a sluggish economy.
Gold – Gold Price Increasing Monday Morning
The price of Gold found support over the past week amid the plummeting strength of the US dollar, the currency in which such assets are valued. Gold has been trading with rather mild price action since June, but traders have been awaiting price resurgence due to the rampant increase in risk aversion due to rising tensions from the euro zone’s periphery and a recent downgrade of US debt by S&P’s ratings agency.
As investors seek safety, the value of gold, which has been seen trading with mixed results, is expected to rise, but a selloff in commodity futures pulled down on precious metals last week. A sudden rise in dollar values due to this week’s uncertain environment is expected to assist the sentiment favoring gold. Should risk sentiment continue to bounce in sporadic directions this week, the price for this precious metal may continue to experience similar swings in value.
Technical News
EUR/USD
Despite the increased volatility the EUR/USD continues to trade in a defined range between 1.4400 and 1.4050. Falling monthly stochastics suggest any approaches to the 1.4400-1.4500 levels may be sold into. Initial resistance comes in at last week’s high of 1.4400 followed by the falling resistance line from the May high at 1.4450. A close above 1.4700 would signal an end to the range trading environment. To the downside support is found at 1.4050 followed by the 200-day moving average at 1.3945 and the rising trend line from June 2010 at 1.3875.
GBP/USD
Last week’s declines found support near the previously broken trend line from the April high and the pair looks to move higher. Resistance comes in at 1.6475 a level sterling has failed to breach three times. A move above here and the technical picture would likely turn bullish with further resistance at 1.6550 and 1.6745. The 200-day moving average at 1.6090 could keep any declines in check with further support at 1.6000 and 1.5935.
USD/JPY
The yen has made two attempts to break through the all-time low that was set in mid-March near 76.25. Rising stochastics on the daily and weekly charts point to potential gains in the pair but short term momentum studies look to have more room to fall before the pressure is relieved. Therefore, a break of 76.25 is favored. After this level there is a lack of support on the monthly chart. To the upside initial resistance is found at last week’s high of 78.50 followed by the post intervention high of 80.20.
USD/CHF
In an amazing run the USD/CHF has gone from a complete free-fall to trade above its 20-day moving average, a level the pair has not seen since early July. After gapping above its initial resistance at 0.7800 the pair could run into resistance at 0.8080 which is also near the 38% retracement from the February high, followed by the trend line that falls off of the February high at 0.8200. This may provide traders better reentry levels into the long term downtrend of the pair. A further resistance level is found out at 0.8550.
The Wild Card
EUR/CHF
By far the best performer and most volatile over the past five days the Swiss franc continues to unravel following threats from the SNB to peg the value of the franc to the euro, though the chances of this occurring are slim as this would require capital controls and intervention by the SNB to maintain the exchange rate. Thus a renewed flair up in euro zone tensions and forex traders could look to enter once again into the long term downtrend of the EUR/CHF at better levels. The EUR/CHF is approaching a 61% retracement from the July 4th high at 1.1470. A break here and the pair will likely test its long-term downtrend from the April high at 1.1900.