Markets rallied following the release of the European Financial Stabilization Plan. The Dow Jones Industrials Average closed up almost 4% for the day as risk taking was prevalent through the day. The Dollar also rallied as the EUR/USD ended the day near its Friday close, erasing the EUR’s gains after the market’s initial reaction to the bailout fund.
Economic News
USD – Dollar Stronger Despite EU Rescue Package
The Dollar rallied during the first full trading day following the release of the European Financial Stability Plan. Investor sentiment rallied across most trading markets after the EU announced a $1 trillion bailout plan consisting of loan guarantees and emergency funds. The show of strength by the EU/IMF bailout package is an attempt by the EU to the markets the extent that the EU will go to in order to defend the euro.
During volatile trading conditions throughout the day, the EUR/USD finished at 1.2755 from an opening price of 1.2945. The pair failed to hold its gains that it made during the Asian trading sessions, falling towards its Friday’s close at the end of New York trading. The Dollar also traded higher versus the JPY. The USD/JPY closed at 93.14 after beginning the day at 92.59.
Looking ahead to today’s trading session, the Dollar could once again be influenced by the developments in Europe. This may be due to a lack of U.S. economic data releases. Despite the sheer size of the EU bailout package, market sentiment continues to be Dollar positive and the Dollar could continue to strengthen. The next support level for the EUR/USD rests at the price of 1.2675.
EUR – EUR’s Gains Erode throughout the Forex Trading Day
Following a sharp bounce higher after the release of the EU/IMF bailout package, the EUR fell once again after new liquidity measures were enacted by the European Central Bank. Over the weekend, the EU announced a $1 trillion rescue fund for distressed Euro-Zone economies. The EU central bank also announced it would begin buying government bonds and renew new liquidity swaps for European banks.
The EUR traded sharply higher when the Asian markets opened Monday morning. However, at the close of New York trading, the euro was trading near its Friday closing price. The EUR/GBP was at 0.8600 from 0.8697. The EUR/JPY closed lower at 118.85 from 119.87.
The bailout package comes as a relief to the Greek fiscal crisis and should help to reduce the spread of further fiscal issues in other EU nations. But the measures taken by the European Central Banks is actually a loosening of monetary policy. As such, the EUR should continue to trade lower versus the major currencies. The EUR/JPY could fall to the 116.50 price level in the near term.
JPY – Yen Falls as Equities Soar
The Yen slumped yesterday as the markets returned to risk taking with a vengeance. U.S. equity markets were up 4% and high yielding assets were in hot demand. Thus, the Yen suffered as traders moved out of safe haven assets.
At the end of the trading day the USD/JPY was up at 93.14 from an opening day price of 92.59. The GBP/JPY was also higher at 138.15 from 137.82. The EUR/JPY dropped after the EUR released its earlier gains against the Yen. The pair closed at 119.87 after reaching a high of 122.27.
A lack of data for the JPY will leave the Yen taking its direction from the events occurring in the European theatre. Currently market sentiment is positive and more geared towards risk taking. This could hurt the Yen in the short term. The next resistance line for the USD/JPY rests at 93.75.
Crude Oil – Spot Crude Oil Jumps on EU Finance Plan
Spot Crude Oil prices rebounded following the release of the $1 trillion EU bailout package. The rise in the commodity coincided with higher equities and a rise in overall risk sentiment. This comes after the previous week’s sharp losses for the commodity.
The price of spot Crude Oil finished the day at $77.38 from an opening day price of $76. At one point prices were up 4% during yesterday’s trading.
After the weekend publication of the EU plan, traders found reason to take on more risk, buying Crude Oil. The EU package is a positive for commodities after the large sell off of commodities and other risky assets during the previous week. This buying trend should continue and allow the price of spot Crude Oil to make up the lost ground from last week when the price fell almost 13%. A short term target for spot Crude Oil may be the resistance line at $82.
Technical News
EUR/USD
The pair may see some recovery today as the RSI for the pair is floating in the oversold territory on the hourly and daily charts. Furthermore, a bullish cross is evident on the 2 hour chart’s Slow Stochastic. Going long with tight stops may be advised for the day.
GBP/USD
The pair may see some recovery today as the RSI for the pair is floating in the oversold territory on the hourly and daily charts. Furthermore, a bullish cross is evident on the 2 hour chart’s Slow Stochastic. Going long with tight stops may be advised for the day.
USD/JPY
The RSI for the pair is floating in the oversold territory on the hourly chart. Furthermore, a breach of the lower Bollinger Band is evident on the hourly chart. However, a bearish cross is seen on the 8 hour chart’s Slow Stochastic. Waiting on a clearer direction for the pair may be advised.
USD/CHF
The RSI for the pair is floating in the oversold territory on the hourly chart while a bearish cross is seen on the 4 hour chart’s Slow Stochastic. Going short for the day may be advised.
The Wild Card
EUR/NOK
The RSI for the pair seems to be floating in the oversold territory on the hourly and 2 hour charts with a bullish cross evident on the 2 hour and 4 hour charts’ Slow Stochastic. Forex traders may be advised to go long for the day.
Written by Forexyard.com