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Euro-Zone News Boosts Riskier Assets

 January 11, 2013 10:06 AM


Higher-yielding currencies and commodities saw significant gains yesterday, after the European Central Bank decided to leave euro-zone interest rates at 0.75% and ECB President Draghi predicted a gradual economic recovery in the region. As markets get ready to close for the weekend, the main pieces of economic news are likely to be the UK Manufacturing Production and US Trade Balance report, set to be released at 9:30 and 13:30 GMT, respectively. If either of the indicators comes in above their forecasted levels, risk taking could boost assets like crude oil, the euro and British pound.

Economic News

USD - US Trade Balance Report Set to Impact Markets Today

The safe-haven US dollar took losses against most of its higher-yielding currency rivals yesterday, as forecasts that the euro-zone is on its way to economic recovery led to risk taking in the marketplace. Against the Swiss franc, the greenback fell more than 90 pips during the European session to eventually reach as low 0.9169. A modest upward correction brought the dollar back to 0.9180 during the afternoon session. The GBP/USD advanced some 85 pips during mid-day trading before peaking at 1.6095.

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Today, the main piece of US news is likely to be the Trade Balance figure, set to be released at 13:30 GMT. Analysts are predicting that the figure will come in at -41.1B, slightly higher than last month's end result of -42.2B. Better than expected news may boost investor confidence in the US economic recovery, which would result in dollar gains before markets close for the weekend. At the same time, if UK manufacturing data signals growth in the British economy, the greenback could take additional losses against the GBP.

EUR - Risk Taking Leads to Significant Euro Gains

[Related -PBoC joins other major central banks with unconventional monetary policy action]

The euro saw significant upward movement yesterday, after EU officials issued a statement saying that they expect economic growth in the region to gradually progress and that euro-zone interest rates would remain at 0.75% for the foreseeable future. Against the US dollar, the euro climbed close to 150 pips during the mid-day session to eventually reach as high as 1.3202, its highest level in more than a week. Against the Japanese yen, the common currency gained some 130 pips to trade as high as 116.48.

Turning to today, euro traders will want to pay attention to the UK Manufacturing Production figure, set to be released at 9:30 GMT. The figure is forecasted to come in at 0.6%, which if true, would be a significant improvement over last month's -1.3%. A higher than expected result would likely lead to additional risk taking in the marketplace, which is likely to give the euro an additional boost to finish out the week.

Gold - Bearish US dollar Sends Gold to One-Week High

Gold prices shot up to a one-week high during European trading yesterday, after investors shifted their funds to riskier assets which weakened the US dollar. Demand for gold often increases when the dollar is bearish because prices become more affordable for international buyers. The precious metal eventually peaked at $1688 an ounce, up more than $20 during European trading.

As markets get ready to close for the weekend, gold traders will want to pay attention to British manufacturing data and its impact on risk taking in the marketplace. If investors continue to shift their funds away from the US dollar to higher-yielding currencies like the GBP and EUR, gold could see additional bullish movement.

Crude Oil - Chinese Data Sends Oil to Three-Month High

Following a better than expected Chinese trade balance report yesterday, which led to speculations that demand for oil in China would increase, crude oil prices shot up to a three-month high. Overall, the commodity was able to gain around $1.60 a barrel to trade as high as $94.66, before a slight downward correction brought prices to the $94.00 level.

Today, oil traders will want to pay attention to the US Trade Balance report, set to be released at 13:30 GMT. If the figure comes in above the forecasted -41.1B, speculations that demand for oil in the US will go up may help the commodity extend its bullish momentum before markets close for the weekend.

Technical News

EUR/USD

The Bollinger Bands on the weekly chart are beginning to narrow, indicating that a price shift could occur in the coming days. That being said, most other technical indicators place this pair in neutral territory, meaning a definitive trend is difficult to predict at this time. Taking a wait and see approach may be the best strategy for this pair.

GBP/USD

The Bollinger Bands on the weekly chart are narrowing, indicating that this pair could see a price shift in the coming days. Furthermore, the MACD/OsMA on the same chart has formed a bearish cross, indicating that the shift could be downward. Opening short positions may be the best option for this pair.

USD/JPY

The Relative Strength Index on the weekly chart is currently in overbought territory, indicating that a downward correction could occur in the coming days. This theory is supported by the Slow Stochastic on the same chart, which has formed a bearish cross. Opening short positions may be the smart move for this pair.

USD/CHF

While the Williams Percent Range on the daily chart has crossed over into overbought territory, most other long-term technical indicators place this pair in neutral territory. Traders may want to take a wait and see approach, as a clearer picture is likely to present itself in the near future.

The Wild Card

EUR/GBP

The daily chart's MACD/OsMA has formed a bearish cross, signaling a possible downward correction in the near future. Furthermore, the Williams Percent Range on the same chart has crossed over into overbought territory. This may be a good time for forex traders to open short positions, ahead of possible bearish movement.

Article Source: Euro-Zone News Boosts Riskier Assets

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