The USD/JPY shot up to a fresh seven-month high during afternoon trading yesterday, as speculations regarding the outcome of upcoming Japanese elections caused investors to shift their funds away from the yen. Meanwhile, crude oil gave up some of its recent gains during European trading, as a decrease in Middle East violence led to a drop in supply side fears among investors. Today, the main piece of economic news is likely to be the US Unemployment Claims, set to be released at 13:30 GMT. Traders will want to note that this indicator is being released a day ahead of schedule, as US markets will be closed on Thursday.
USD - US Unemployment Claims May Result in Dollar Gains
The US dollar was bullish against several of its main currency rivals during European trading yesterday, as uncertainties about the global economy continued to boost safe-haven currencies. The AUD/USD fell close to 50 pips during mid-day trading, eventually trading as low as 1.0363 before bouncing back to the 1.0375 level. Against the Japanese yen, the greenback shot up to a new seven-month high at 81.71 as speculations continued to mount that the opposition party will win next month's Japanese elections. The Japanese opposition favors additional monetary stimulus, which is seen as bearish for the yen.
Today, the main piece of economic news is likely to be the US Unemployment Claims figure, scheduled to be released at 13:30 GMT. Analysts are expecting the figure to come in at around 423K, which if true, would be an improvement over last week's surprisingly high 439K. If the figure comes in below its forecasted level, it may be taken as a sign that the US economic recovery is gaining traction, which could help the dollar extend some of its recent gains.
EUR - Euro Recovers Following French Credit Downgrade
The euro was able to stage a moderate recovery during European trading yesterday, following the downgrading of France's credit rating earlier in the week. Expectations that the opposition party will win the upcoming Japanese elections helped the EUR/JPY advance more than 70 pips to trade as high as 104.62 during the afternoon session. Against the USD, the euro received a boost from investor optimism that Greece will soon receive a new round of bailout funds. The EUR/USD gained some 25 pips during the morning session, eventually reaching as high as 1.2810.
Today, traders will want to continue monitoring announcements out of the euro-zone with regards to the debt situations in both Greece and Spain. Any signs that either country is closer to receiving bailout packages could lead to euro gains. Tomorrow, German and French manufacturing data is expected to generate heavy market volatility. Worse than expected data could lead to fears that the EU's biggest economies are moving closer to recession, which may result in significant euro losses.
Gold - Gold Prices High amid Hopes for US Budget Deal
Gold was able to hang onto most of its gains from earlier in the week during European trading yesterday, as hopes that US Congressional leaders will soon reach a budget deal to avert the upcoming "fiscal cliff" will soon be reached. The "fiscal cliff" is a series of automatic tax increases and spending cuts that will take place at the end of the year if a budget cannot be agreed to.
After dropping close to $4 an ounce during mid-day trading, gold was able to recover most of its losses and spent the rest of the day trading around the $1732 level.
Today, gold traders will want to continue monitoring any developments with regards to the ongoing "fiscal cliff" negotiations in the US Congress. Analysts are forecasting that gold prices may advance in the coming days if it becomes clear that a deal is closer to being reached.
Crude Oil - Rumors of Upcoming Mid-East Cease Fire Turn Oil Bearish
Rumors that Israel and Hamas were closer to signing a cease-fire agreement yesterday led to a decrease in supply side fears among investors, which resulted in the price of crude oil giving up some of its recent gains. Oil fell more than $0.80 a barrel during European trading, eventually reaching $88.26, before bouncing back to the $88.60 level.
Today, analysts are warning that oil prices could quickly turn bullish again if there is any escalation in the conflict in Israel and the Gaza Strip. Furthermore, traders will want to pay attention to the US Crude Oil Inventories report, set to be released at 15:30 GMT. If the figure comes in below the forecasted 1.0M, oil could turn bullish as a result.
In a sign that upward movement could occur in the coming days, the MACD/OsMA on the weekly chart appears close to forming a bullish cross. That being said, most other long-term technical indicators place this pair in neutral territory. Traders may want to take a wait and see approach until a clearer picture presents itself.
The Bollinger Bands on the daily chart are beginning to narrow, indicating that a price shift could occur in the near future. Additionally, the MACD/OsMA on the same chart has formed a bullish cross. Opening long positions may be the smart choice for this pair.
The Slow Stochastic on the weekly chart appears close to forming a bearish cross, indicating that this pair could see downward movement in the coming days. This theory is supported by the Williams Percent Range on the same chart, which has crossed into overbought territory. Opening short positions may be a wise choice for this pair.
Most long-term technical indicators indicate that this pair is range trading, meaning that a definitive trend is difficult to predict at this time. Traders may want to take a wait and see approach, as a clearer picture is likely to present itself in the coming days.
The Wild Card
The Relative Strength Index on the daily chart is approaching the overbought zone, indicating that a downward correction could take place in the near future. Furthermore, the Slow Stochastic on the same chart appears to be forming a bearish cross. Forex traders will want to keep an eye on these two indicators, as they may soon point to impending bearish movement.
Article Source: USD/JPY Hits Fresh 7-Month High