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Risk Aversion Leads To Euro Losses

 January 16, 2013 10:57 AM


The euro, along with other higher-yielding currencies, turned bearish yesterday, as fears regarding the slow pace of the US economic recovery encouraged investors to shift their funds to safe-haven assets. Meanwhile, the JPY was able to recoup some of its recent losses, following comments from the Japanese economic minister which led to doubts about how aggressive a policy of monetary easing the Bank of Japan is willing to take. Today, CPI data out of both the euro-zone and US is expected to impact the marketplace. If any of the data comes in above expectations, risk taking could boost the euro.

Economic News

USD - US CPI Data Set to Impact Markets Today

The US dollar saw a mixed trading day yesterday, as risk aversion due to a recent speech from Fed Chairman Bernanke boosted safe-haven currencies, while comments from Japanese officials caused the USD/JPY to take losses. Bernanke's speech, in which he commented on the slow pace of the US economic recovery, resulted in gains for the safe-haven dollar against the Swiss franc. The USD/CHF gained more than 80 pips during European trading to reach as high as 0.9307. Meanwhile, signs that the Bank of Japan will not initiate as aggressive a policy of monetary easing as once thought caused the USD/JPY to fall more than 120 pips during the first part of the day.

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Today, dollar traders will want to pay attention to the US CPI and Core CPI figures, both scheduled to be released at 13:30 GMT. Both indicators are expected to come in above last month's end results. If true, investors may interpret the news as a sign that the US economy is improving, which could result in risk taking and losses for the safe-haven USD. Later in the week, traders will not want to forget to note the results of this month's Philly Fed Manufacturing Index and Prelim UoM Consumer Sentiment figures for additional clues regarding the current state of the US economy.

EUR - Bernanke Comments Result in Euro Losses

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The euro took losses against its safe-haven currency rivals yesterday, as comments from the Fed Chairman earlier in the week about the slow pace of the US economic recovery caused investors to shift their funds to less volatile assets. The EUR/USD, which after a brief rally during early morning trading that brought prices as high as 1.3387, fell more than 70 pips to reach 1.3308. By the end of the European session, the pair was trading at 1.3350. The EUR/JPY fell more than 200 pips during the first part of the day, largely due to comments from Japanese officials, to trade as low as 117.62.

The euro-zone CPI and Core CPI figures, both scheduled to be released at 10:00 GMT, are forecasted to generate euro volatility today. Should either of the indicators come in above their forecasted levels, risk taking among investors will likely help the common-currency recover some of yesterday's losses. That being said, if the CPI data out of the US comes in below expectations, concerns regarding the pace of the global economic recovery could lead to risk aversion and losses for the euro.

Gold - High Demand for Gold Boosts Prices

An increase in demand for safe-haven assets boosted gold prices yesterday. Analysts attributed the high demand to recent comments from Fed Chairman Bernanke, regarding the slow pace of the US economic recovery, which caused investors to shift their funds to precious metals. Gold advanced more than $12 an ounce during mid-day trading to reach as high as $1684.17.

Today, gold traders will want to pay attention to the US CPI and Core CPI figures, scheduled for 13:30 GMT. If either of the indicators comes in above expectations, fears regarding the US economy may be eased, which would result in gold giving up some of its recent gains.

Crude Oil - US Inventories Data Set to Impact Oil Prices

Concerns regarding the lack of progress in negotiations among US lawmakers to raise the debt ceiling caused the price of crude oil to come off its recent four-month high yesterday. After trading as high as $94.41 a barrel during mid-day trading, prices fell more than $0.80 to reach as low as $93.57.

Today, traders will want to pay attention to the US Crude Oil Inventories figure, set to be released at 15:30 GMT. Analysts are predicting that US stockpiles will increase to 2.0M, which if true, would signal reduced demand for oil and may result in a further decrease in prices.

Technical News

EUR/USD

A bearish cross has recently formed on the weekly chart's Slow Stochastic, indicating that a downward correction could occur in the coming days. This theory is supported by the Williams Percent Range on the same chart, which is currently in overbought territory. Opening short positions may be the smart choice for this pair.

GBP/USD

While the Bollinger Bands on the weekly chart are narrowing, indicating that a shift in price could occur in the near future, most other long-term technical indicators are in neutral territory. Traders may want to take a wait and see approach for this pair, as a clearer picture is likely to present itself soon.

USD/JPY

The Relative Strength Index on the weekly chart is in overbought territory, indicating that a downward correction may occur in the coming days. Furthermore, a bearish cross has formed on the same chart's Slow Stochastic. Traders may want to open short positions for this pair.

USD/CHF

The Bollinger Bands on the weekly chart are narrowing, indicating that a price shift is likely to occur in the near future. Additionally, the Williams Percent Rang on the same chart has dropped into oversold territory, signaling that the price shift could be bullish. Opening long positions may be the smart choice for this pair.

The Wild Card

EUR/CAD

The Slow Stochastic on the daily chart has formed a bearish cross, indicating that downward movement could occur in the near future. This theory is supported by the Williams Percent Range on the same chart, which has crossed into overbought territory. Opening short positions may be the smart choice for forex traders today.

Article Source: Risk Aversion Leads to Euro Losses

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