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EUR/USD Pair Sparks Fireworks

Discussion in 'Forex Daily News & Outlook' started by mercaforex, Jan 20, 2010.

  1. mercaforex

    mercaforex New Member

    Jul 1, 2009
    Likes Received:
    The USD got stronger against both the EUR and GBP on Tuesday, but the move the greenback made against the EUR was very strong comparably. The broad marketplace proved divergent yesterday and highlights how many questions are hovering over different spheres. The TIC Long Term Purchases outcome was much improved with an outcome of 126.8 billion but there were other huge factors in the markets. Wall Street did well yesterday and some of this impetus certainly came from the announcement that Kraft has seemingly proved successful in its attempt to purchase the Cadbury after a long negotiation. The obvious question that investors will be asking themselves this morning is why the USD grew so strong when Wall Street did as well? And for some perspective on this, fault lines within the EUR played their part. Today from the U.S. there will be Building Permits and Housing Starts data and both results are expected to be near the previous month’s numbers. Investors will watch the results from the Construction sector and have to bear in mind that last month’s cold weather may have played a part in skewing today’s bottom line.

    Of interest also today for investors will no doubt be the election results from Massachusetts in which a Republican was elected to the U.S. Senate. The victory puts into question President Obama’s health care plan and lends itself to the belief that the American people may be sending the White House a message regarding government spending and its legislative agenda. A more conservative approach to fiscal spending will likely be something investors see as a positive. And the question that begs, is if investors bet on a Republican victory yesterday on Wall Street, which might have helped equities climb. It could prove another dynamic day in the currency markets with data and news bouncing about. More quarterly earnings are on the calendar today from banking companies. The USD strength against the EUR yesterday was noteworthy and the results will force traders to pay close attention.

    The news for the EUR yesterday could not have been much worse. Not only did German economic data disappoint but news about the Greek budget and its impact on their government bonds had its hysteria ramped up. The German ZEW Economic Sentiment reading came in at 47.2, which was well below the estimate of 49.8. This raises fresh concerns that the Germany economy might be lurching towards another ‘official’ recessionary cycle. Coupled with the news coming from the European Union meetings in Brussels focusing on the Greek debt issues and the possibility raised that the Greek government might not have been straight forward about its accounting caused red flags for investors. The EUR finds itself at a four month low against the USD. German PPI figures will be released today and tomorrow plenty of PMI Flash data will be brought forth. After suffering a resoundingly poor day against the greenback yesterday, the question traders will ask today is just how strong the headwinds will be today for the European currency.

    The Sterling lost ground to the USD on Tuesday but it did not get battered like the EUR did. The GBP in certain regards took the strong greenback move relatively well and this will cause traders to ask what today’s reaction may be and if a short term trend could develop to balance yesterday’s divergence. The Sterling was helped by better than expected CPI data. Today the MPC Meeting Minutes will be published and Claimant Count Change and Unemployment numbers are on the schedule too. Though the GBP felt headwinds yesterday, it did not face the same storm the EUR did. This could be because of the perception that the U.K. government is more transparent regarding its economic struggles than the European Union. It will be an interesting day across the board and the Sterling’s relatively calm performance yesterday may create opportunistic trading today.

    The JPY held its ground against the USD yesterday as news from the JAL restructuring hit risk sentiment. Asian bourses did not turn in positive trading like their ‘western’ counterparts on Tuesday and the JPY continues to reflect a value that most economists agree is too strong and harms its ability to recover from the economic crisis and importantly deflation. Gold treaded water in trading on Tuesday and finds itself around 1130.00. Of interest is that Gold somehow held onto its current level even in the wake of a strong move by the greenback and this result should have gold traders on a razor’s edge this morning.

    Technical Analysis

    According to the Gold 8 Hour Chart, the commodity has been range trading between the $1,126 and $1,142 levels in the past 5 trading days. This trading range is highlighted on the chart to illustrate what might at first appear to be a high trading range. On the other hand, since the commencement of the recent economic recession, despite governments around the world recently announcing that it is officially over, Gold at times tends to trade within a range of a staggering $25 range in a single trading day. Therefore, I think that the behavior on the chart indicates that the commodity is struggling to find a consistent price level at the moment. Also, it may become more apparent that as the month’s trading comes to a close, we may see Gold trading outside this range. I feel that this could be the case due to market liquidity returning back to normal. As a result, professional fx traders and big banks will return full throttle to the forex market. The current support levels are $1,085.64, $1,092.98, $1,114.69 and $1,126.43, and the most recent resistance levels are $1,141.40 and $1,145.80. If Gold actually manages to breach the $1,141.40 resistance level by the conclusion of this week’s trading, then this may ignite a Gold rally.

    The EUR/USD currency cross is currently going through sustained bearishness in the past 24 hours of trading. The EUR/USD 4 Hour Chart illustrates the current bearish trend of the pair highlighted in yellow. The first highlighted candle shows a sharp bearish move, then the next several candles show consolidation of the price of the pair, and then following this, we see the pair sliding significantly lower. What can be said about this is that as of early trading on the 19th of January, the EUR/USD currency cross has weakened significantly, and we have witnessed a resurgence of the USD in the short-term. The question now is will the pair continue to slide lower in the coming trading day? This is actually a very difficult thing to forecast. However, with the current market price at $1.4196, if the pair slips below the support level of $1.4162, then we may see the pair trading at the $1.4100 level sooner rather than later. The support level lies at $1.4162 and the most recent resistance levels are at $1.4311 and $1.4414.

    The highlighted area on the GBP/USD 4 Hour Chart shows that the pair recently rose to hit a peak of about $1.6460. However, ever since then, we have seen the pair dive noticeably lower to the current market price of $1.6296. This is a staggering 164 pips. The reason why this is so significant is because many forex traders foresaw that the pair would continue rising from what we see as the peak. However, reality showed just the opposite happened. I’m of the view that the relatively strong body of the latest candle on the chart does indicate that we may see some more bearishness for the EUR/USD pair in today’s trading. A popular strategy in the short-term may be to sell on highs and buy on lows, and buy on lows and sell on highs. Despite this being a popular strategy amongst many professional fx traders as of late, there is always the possibility of being caught up in the pair. The current support levels are $1.6135 and $1.6210, and the resistance levels are $1.6350, $1.6394 and $1.6453.

    The USD/JPY 2 Hour Chart exemplifies some very remarkable trading performance in the past 24 hours. The part of the chart that is highlighted in green shows that at first the pair recorded remarkable bullishness to rise from around the 90.40 Yen mark to about 91.25 Yen. This is an astonishing 85 pip price rise. Many fx traders in fact bought and sold the pair, and made significant returns on their investments. On the other hand, there were those traders that are still stuck in the pair. The blue color on the chart shows the pair dipping slightly. From this point on, the pair has been consolidating and trading between the 91.05 Yen and 91.45 Yen price levels. This is a notably short trading range. What is more is that the last several candles on the chart that are highlighted in yellow, fail to provide significant clues to the future direction of the pair. I feel that it may be best to be cautious of the USD/JPY currency pair for now. The latest support levels are 90.30 Yen and 91.05 Yen, and the resistance levels are 92.04 Yen and 92.42 Yen.

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