EUR/USD Mid-Session Analysis for October 17, 2012

Since breaking out over a trend line on Tuesday, the EUR/USD continues to surge, putting it in a position to challenge the September 17 top at 1.3172. This price is also the September high. A move through this level will mean a continuation of the rally from the July bottom.

The almost one month sideways action in the EUR/USD has created a rectangle formation bounded by the September 14 top at 1.3172 and the October 1 bottom at 1.2803. The current upside momentum suggests an impending breakout to the upside.

Daily EUR/USD Chart
Daily EUR/USD Chart

The Gann angles are also indicating strength. Since bottoming at 1.2825 on October 11, the EUR/USD is moving at a pace of .008 per day. This makes 1.3145 a potential upside target today. On the downside, support has moved up to 1.2985.

Because of the steep nature of the current rally, the EUR/USD is ripe for a correction. The first sign of a short-term top will be an intraday closing price reversal top. Typically, this takes place on the 60-minute chart. If the market does make a higher-high and a lower-close, the potential down move is expected to be corrective in nature rather than trend changing. 

Increased Inventories Continue to Weigh on Crude Oil Prices

Despite the weaker U.S. Dollar, December Crude Oil futures could not muster much of a rally early in the session. The market is currently trading below $92 a barrel, down about 85 cents from its high. Sellers took control after the U.S. reported a bigger-than-expected rise in last week’s crude oil inventories and an unexpected climb in gasoline supplies. The loss would probably be much bigger if it weren’t for the dollar’s decline.

Pre-report estimates were calling for an increase of 1.5 million barrels in crude supplies, but the U.S. Energy Information Administration reported that crude supplies rose by 2.9 million barrels, encouraging investors to pare positions.  

Longer-term investors are getting mixed signals from the rise in crude oil inventories. While other economic reports such as housing are suggesting that the U.S. is mounting a slow recovery, the rise in crude oil inventories suggest otherwise. The timing as to when the excessive supply will top is the major concern. This is likely to keep prices capped, but increased demand for higher-risk assets will also keep it underpinned. The push and pull of these two factors is creating a sideways trade.

The EUR/USD continues to trade higher after Tuesday’s upside breakout. The news that Moody’s affirmed Spain’s credit rating at Baa3, kept it in investment grade territory, but the agency also gave it a negative outlook. Traders drove the Euro higher based on the first part of the announcement, choosing to ignore the possibility of a downgrade later if conditions continue to deteriorate. Upside momentum suggests that the Forex pair will challenge the September top at 1.3172 by the end of the week.

After turning up this week because of technically oversold conditions, the GBP/USD is trading higher after data showed that the unemployment rate in the U.K. declined unexpectedly. Additionally, the news that the Bank of England monetary policymakers were unanimous in deciding to maintain quantitative easing and low interest rates, also underpinned the Sterling.

The drop in unemployment could mean that the BoE will once again refrain from adding additional stimulus, a move that tends to weaken a currency. It may not mean that employment is ready to trend higher, but it may be an indication that quantitative easing is working to grow the economy.

December Gold is trading firmer because of the weaker dollar. Now that the uncertainty over Spain has been lifted, traders are treating gold as a commodity rather than a reserve currency. This will make it more sensitive to moves in the U.S. Dollar. 

EUR/USD Mid-Session Analysis for October 16, 2012

The EUR/USD is up sharply at the mid-session, buoyed by reports that Spain was getting ready to make a formal request for financial aid from the European Union. This action would open the door to additional help from the European Central Bank in the form of a bond purchasing program. Today’s trading activity suggests that investors could be ready to take the currency pair to a new level now that the sideways logjam that has held the market in check for about a month is dissipating. 

Today’s action is all about momentum. Investors are buying the Euro with conviction and shorts are covering feverishly as the clarity offered by Spain’s decision is giving them the confidence they need to drive the market higher. 

Daily EUR/USD Chart
Daily EUR/USD Chart

The first technical level to go this morning was the 50% price at 1.2987. This was followed by a downtrend line at 1.3020 and a Fibonacci level at 1.3031. Each breakout move was supported by strong buying which generated the momentum needed to plow through the listed price levels. 

The fast movement triggered a spike-like breakout. Now that the EUR/USD has overcome several resistance barriers, these levels should become support. Additionally, uptrending Gann angle support is at 1.2945 to 1.2885. These angles move up .004 and .002 each day respectively. The combination of the fast moving Gann line and the down-sloping trendline cross at 1.3011 and 1.3025 on October 18, making this zone an important potential support level to watch. 

On the upside, the October 5 top at 1.3071 is the first upside target, followed by the September 17 top at 1.3172. Taking out 1.3071 will mean a new high for the month while a move through 1.3172 will signal a continuation of the rally which began in late July. It will also serve as a confirmation of the pledge by European Central Bank President Draghi to all he can to preserve the Euro. 

Euro Surges on Spain Bailout Talk

The Euro surged on Tuesday against the U.S. Dollar along with other currencies as speculation grew that Spain was considering applying for a credit line from the European Union’s bailout fund. This news lifted some of the concerns that had been holding back the Euro for the past week although no time has been given for the announcement. A formal request by Spain is important because it will allow the European Central Bank to begin its bond-buying program. This is the plan that could solidify Europe and fix some of the lingering sovereign debt issues.

Technical factors also played a role in today’s rally. After successfully testing a key 50% area near 1.2800, the EUR/USD appears to have garnered enough support to drive it through a major down trend line near 1.3000. The first target at 1.3071 should be easily attained with 1.3200 a reasonable possibility given the current momentum.

The strength in the Euro has spilled over to the GBP/USD also. Today is a “risk-on” day and the British Pound should benefit. Earlier in the session, U.K. inflation data came out in line with expectations, now traders are shifting their focus on the Monetary Policy Committee minutes. This report should give traders some clues as to the Bank of England’s future actions. The upside may be limited because of concerns that the BoE will continue to buy assets and thus increase liquidity.

December Gold is mounting a small comeback after changing the trend to down on the daily chart. Investors sold off gold the past two weeks as they grew frustrated by the market’s inability to break through the psychological $1800.00 level. If the dollar weakens considerably over the near-term, gold should make another attempt to breakout over resistance.

December Crude Oil is also trading better after successfully testing a key 50% level at $90.00 on Monday. The next potential upside target is $95.00. One way the market is going to get there is with a weaker U.S. Dollar. The perception is a weaker dollar will make crude oil priced in dollars cheaper. This should lead to increased demand which would help pressure supply. 

EUR/USD Mid-Session Analysis for October 15, 2012

The daily EUR/USD chart reflects clearly the sideways trade that is taking place currently. Traders appear to be giving the possibility of a formal request from Spain for a bailout the benefit of the doubt. This is being reflected by the bouncing between a pair of retracement zones. The lower-top at 1.3071 is an indication that shorts may be building a position, but the higher-bottom is a sign that investors are willing to buy if the price is right. The tug of war between bullish and bearish traders is creating a choppy, two-sided trade which could keep the market under wraps for several more days.

Here is the breakdown of the trading ranges. The first key range is 1.3071 to 1.2825. This has created a retracement zone at 1.2948 to 1.2977. This range has provided resistance the last three days. The short-term range of 1.2825 to 1.2991 has created a range at 1.2908 to 1.2888. Today’s low occurred inside of this range. The easiest way to look at the market at this time is to treat the Fibonacci levels as support and resistance. These levels are 1.2888 to 1.2977.

Daily EUR/USD Chart
Daily EUR/USD Chart

Both uptrending and downtrending Gann angles have provided support and resistance lately. The balancing point on the chart is an angle at 1.2951. This also crosses a 50% level at 1.2948. Holding above this angle could trigger a rally into 1.3011. On the downside, the uptrending support angle is at 1.2905, followed by 1.2865.

Sideways markets are frustrating, but often lead to volatile breakouts. The longer the market remains range bound, the greater the movement after the breakout. On the upside, bullish traders should make note of the downtrend line. This should act as an upside breakout trigger. On the downside, the 50% price at 1.2818 is the key breakout level.

EUR/USD Mixed as Hopes of Spanish Bailout Fade

The U.S. Dollar traded mixed against the Euro and the British Pound. Initially, currency markets experienced solid gains after China said inflation slowed; however, these profits were lost shortly before the release of the U.S. Retail Sales report.

Also encouraging the EUR/USD to top out early were fading expectations that Spain would formally seek a bailout ahead of this Thursday and Friday’s European summit. Traders are pricing in the possibility that European leaders will not be able to reach a conclusion as to whether to approve the release of the latest tranche of aid for Greece.

U.S. retail sales in September advanced 1.1 percent and the August report was revised to show a 1.2 percent increase. Consumer prices in China rose only 1.9 percent last month from a year earlier. This news gives the government more room to stimulate the economy should it deteriorate and led to increased demand for higher-risk assets early in the session. This demand faded, however, as traders decided not to chase these assets higher ahead of a busy week.

The GBP/USD traded flat after a two-directional trade early in the session. The better-than-expected U.S. retail data pressured the currency pair but this move followed a rally that was fueled by the China’s friendly inflation report. The main trend is down on the daily chart, but conditions are oversold, making the market ripe for a short-term turnaround. The fundamentals remain weak as traders are pricing in the possibility of additional asset-buying at the next Bank of England policy meeting next month.

Technical factors are leading the weakness in December Gold. The mixed Dollar is also giving investors a reason to pare positions. The recent rise to $1800.00 was triggered by the thought of additional stimulus by the U.S. Federal Reserve and the European Central Bank. Once this initial euphoria faded, gold investors looked at the market as over-valued and decided to take profits. The inability to pierce the $1800.00 level with conviction gave investors a reason to sell their positions in the hope of buying back at much favorable prices. This is the cycle that gold is going through at this time. Selling pressure may lead to a change in trend to down. This move will take out the weaker shorts, but lead the market into a value-zone where the next round of buyers will be waiting.

December Crude Oil is also under pressure today. The mixed-dollar is contributing to the weakness, but concerns about oversupply and fading worries about a disruption in supply are the largest contributors to the weakness. Traders may try to establish support near the psychological $90 level, but this is no guarantee. The bearish supply/demand situation is strong enough to trigger additional weakness, but speculators banking on an escalation of the conflict between Syria and Turkey may show up to support the market if prices get too cheap. Traders should brace for a volatile two-sided trade over the near-term. 

EUR/USD Mid-Session Analysis for October 12, 2012

The EUR/USD is following through to the upside after Thursday’s closing price reversal bottom. Today’s upside momentum was strong enough to take out a pair of minor retracement levels at 1.2948 and 1.2977. Additionally, the market broke through a downtrending Gann angle at 1.2971. All of these moves indicate strong buying.

Daily EUR/USD Chart
Daily EUR/USD Chart

The strength of the market is also being determined by the fact that the rally is moving up at a pace of .008 per day. This places the support angle at 1.2928, followed by a slower moving Gann angle at 1.2877.

Now that the resistance zone has been penetrated, traders should watch for a drive into another downtrending Gann angle at 1.3021. Looking at the bigger picture, a downtrend line connecting the 1.3172 and 1.3071 tops is at 1.3032. Since this trendline has been battle-tested and proven to be solid resistance in the recent past, traders should watch for a technical bounce following a test of this price. A breakout through this trendline, however, is likely to trigger an acceleration to the upside.

Euro Speculators Banking on New Aid for Spain

The EUR/USD is getting a boost on speculation that Spain will soon make a formal request for financial aid from the European Central Bank. This event has been holding traders hostage for about two weeks, keeping prices in a range. This step in the process of leading Europe to the road to recovery is necessary because it will allow the ECB to begin its bond-purchasing program. While traders believe the deal will get done, the uncertainty as to when the process will begin is making them nervous, leading to the paring of long positions.

The firm tone in the global equity markets is also pressuring the dollar. Investors are buying stocks ahead of the start of earnings season next week. This is driving up overall demand for higher-risk assets, pressuring safe-haven investments such as the U.S. Dollar and the Japanese Yen.

Technically oversold conditions and a weaker dollar are helping to bolster the GBP/USD. Although the U.K. economy is still mired in an economic slowdown, the currency pair was ripe for a short-term turnaround after falling from 1.6309 on September 21 to 1.5976 on October 10. The main trend is not expected to change to up on this move as it is more corrective in nature. Talk of additional stimulus by the Bank of England in the form of additional asset purchases is keeping a lid on prices.

December gold is holding steady which could be a sign of impending volatility. The inability to rally beyond the psychological $1800.00 level is an indication that prices may be too high and that investors may be seeking value. Additionally, the failure to rally on the U.S. Dollar’s weakness is further evidence that investors may be waiting to refresh positions at a better price.

Although the crude oil market is facing pressure from oversupply, the focus this week has shifted to the possibility of a supply disruption. An escalation of the conflict between Syria and Turkey could shut down a pipeline, triggering a surge in prices. This situation is not expected to go away over the short-term run so the market may be underpinned by speculative buying for some time. 

EUR/USD Mid-Session Analysis for October 11, 2012

The EUR/USD held a test of a key 50% level at 1.2818 once again, triggering a strong short-covering rally that has the market trading near its high at the mid-session. Beside the 50% level, the market also held the October 1 bottom at 1.2803, proving that investors were willing to defend this area.

Another test of a mid-point of the 1.2465 to 1.3172 range indicates that the Euro is range bound against the dollar. This ties in nicely with the fundamentals which are causing uncertainty. One of the main reasons for the sideways trade is the inability by Spain to make a decision regarding financial aid from the European Central Bank. The inability to break the EUR/USD beyond the 50% level suggests that investors are leaning toward a resolution over the near-term. If talks were to completely fall apart then the Euro would fall sharply against the dollar. The trigger point for this break would be the 1.2818 price level.

Daily EUR/USD Chart
Daily EUR/USD Chart

On the upside, the EUR/USD is showing strength at the mid-session by its penetration of the downtrending Gann angle at 1.2911. A sustained move through this angle will mean a test of 1.2991 is likely over the near-term. Longer-term traders should note the trend line breakout area near 1.3040.

The short-term range is 1.3071 to 1.2825. The retracement zone created by this range is 1.2818 to 1.2735. This could be tested today if upside momentum continues. 

Short-Covering Driving EUR/USD Higher

  • Technical and fundamental factors contributed to a rise in the EUR/USD on Thursday. Technically, the market successfully tested a 50% price level at 1.2824. Selling pressure subsided when the currency pair reached this level, causing shorts to cover. One reason for the early session weakness was a downgrade of Spain’s debt rating to near-junk status.

    Since this move was largely expected, however, the market quickly reversed to the upside in a typical “sell the rumor, buy the fact” situation. The ensuing short-covering rally helped the Euro recover much of its four-day loss against the U.S. Dollar. One catalyst for the short-covering rally was the idea that the ratings downgrade would prompt Spain to finally make a formal request for financial aid from the European Central Bank.

    Another reason for the sharp rise in the Euro was increased demand for higher risk assets. Overnight, Asia began to bid up equity markets. This action spread overnight to Europe, prompting a shift in investor sentiment. The news that U.S. weekly jobless claims fell to their lowest level in four years while its trade deficit widened also triggered new demand for risky assets. The improvement in jobless claims is further evidence that the U.S. jobs market is improving.  On the negative side, however, the Commerce Department said the trade deficit increased to $44.2 billion in August. A wider trade deficit tends to hurt growth because it means the U.S. is earning less on overseas sales of American-produced goods while spending more on foreign products.

    The mixed fundamental news is adding to the confusion in the market which typically means traders should prepare for a volatile two-sided trade.

    The lack of fresh economic news out of the U.K. gave traders little choice but to follow the direction of the Euro and the U.S. Dollar. Greater demand for risky assets helped to boost the Euro which meant British Pound traders would react in similar fashion. The weaker U.S. Dollar also gave the Sterling a boost. Technical factors also played a role in the strength of the GBP/USD. Since topping at 1.6309 on September 21, the British Pound has fallen considerably against the U.S. Dollar in a series of lower-tops and lower-bottoms. This type of trading action usually indicates the presence of institutional selling.

    The weaker U.S. Dollar is also giving December gold futures a boost after declining for several days. Gold is still in a well-defined uptrend, but the lack of buying interest near $1800.00 has encouraged long-traders to pare their holdings in the hopes of better prices. Gold completed a 50% retracement of its recent range at $1768.20, attracting some fresh buying. The low near $1765.00 could become a bottom if momentum returns to the market. Uncertainty in Europe and the desire for value could keep a lid on prices over the near-term.

    December crude oil is making a comeback today after Wednesday’s reversal top. Speculators continue to support the market on breaks in anticipation of an escalation of the conflict between Syria and Turkey. The supply/demand situation continues to paint a bearish picture for the true fundamentalists, but oversold conditions and a potentially bullish story should continue to attract speculative buyers. A disruption in crude oil supply is one of the strongest drivers of higher prices.

     

EUR/USD Mid-Session Analysis for October 10, 2012

Short-term oversold conditions are leading to a rebound in the EUR/USD at the mid-session. Sellers became scarce as the market approached a slow-moving, uptrending Gann angle at 1.2838 and the low for the month at 1.2803. Looking at the bigger picture, a major 50% level at 1.2818 may have also influenced the decisions of traders. 

Today’s action suggests the formation of a minor closing price reversal bottom. This could lead to a 1 to 2 day retracement of the last break. Based on the near-term range of 1.3071 to 1.2834, traders should look for a possible rally to 1.2952 to 1.2980. 

Daily EUR/USD Chart
Daily EUR/USD Chart

Before the EUR/USD reaches this zone, it must penetrate a downtrending Gann angle at 1.2951 today. This angle has provided solid guidance and direction for the market since the top was reached on October 5. 

The test of the retracement zone is very important to the structure of the current chart pattern on the daily chart. If the rally stops in the retracement zone then this will be a strong sign that sellers are taking control and that sentiment is getting ready to shift to the downside. The technical term is secondary lower-top. This type of top often attracts heavy selling pressure so traders should watch for the shift in sentiment to take advantage of the potential break. 

Crossing back over to the bullish side of this retracement zone will be a sign of strength. This will mean traders will go after the top. A breakout over 1.3071 will confirm the double-bottom at 1.2803 and 1.2834. 

Despite Rebound, Euro Remains Vulnerable

Oversold conditions may be contributing to today’s rebound rally in the EUR/USD. The market has sold off for three days on increasing momentum; however, after reaching the low for the week, selling pressure subsided as the market neared a 50% level at 1.2818 and the last main bottom at 1.2803. 

Although the Euro is trading higher against the U.S. Dollar today, the currency remains vulnerable to further losses as traders await Spain’s formal request for a bailout.Greece is also in line for more money if it can prove it’s making strides to shoring up its finances. The longer these problems persist, the lower the Euro can move as investor sentiment shifts away from risky assets.

 

The stronger U.S. Dollar and lingering problems in Europe are two reasons why the British Pound has been falling against the Greenback. The U.K. economy is not expected to recover soon if Europe continues to experience sovereign debt problems. Furthermore, the forecast by the International Monetary Fund of a global economic slowdown means that the U.K. will have a harder time pulling out of its recession. These persistent problems will likely force the Bank of England to purchase additional assets which would in effect weaken the currency. 

December Gold appears to be vulnerable to a near-term sell-off as buyers became scarce as the market approached the $1800.00 level. Many investors believed that the implementation of additional quantitative easing by the U.S. Federal Reserve would launch gold futures to new levels; however, gold investors refuse to chase the market higher. These investors are looking for value and that means lower prices. Furthermore, the stronger U.S. Dollar is forcing traders to reconsider holding on to gold. This is leading some to pare positions while they assess the reasons for the dollar’s strength. 

Despite the stronger U.S. Dollar, December crude oil is showing surprising strength. Supply concerns are the driving force behind the rally. Speculators are supporting crude oil because they anticipate an escalation in the battles between Syria and Turkey. Furthermore, a conflict between Israel and Iran is still a possibility. This week it was reported that crude oil production had reached a 15-year high. Now that this story is out there, production may slow down, allowing prices to firm. Without demand, however, don’t expect too much of a rebound.

 

EUR/USD Mid-Session Analysis for October 9, 2012

After ping-ponging between a pair of retracement zones, the EUR/USD is trading decisively lower at the mid-session. 

Early in the trading session, the EUR/USD found resistance at a 50% price level at 1.2987 and a downtrending Gann angle at 1.2997. This resistance cluster encouraged fresh selling pressure that drove the market into another retracement zone at 1.2937 to 1.2905. 

Daily EUR/USD Chart
Daily EUR/USD Chart

The first level at 1.2937 stopped the break, garnering some light buying interest that triggered a “soft” intra-day retracement. After this rally failed, new sellers emerged, causing earlier intraday support to fail. This fueled a break through an uptrending Gann angle at 1.2923 and into a Fibonacci level at 1.2905. 

Selling pressure continued as all of the potential support levels failed to attract any substantial buyers. At the mid-session, a combination of fresh short-selling and profit-taking drove the EUR/USD to the low of the session at 1.2906, setting up the currency pair for a late-session test of another uptrending Gann angle at 1.2863. 

Although the main trend is technically still up, today’s action suggests a shift in power to the short-sellers. Unless buyers step up to defend support levels, the daily trend may change to down by the end of the week.

Crude Oil Rallies on Supply Concerns

December Crude Oil rallied on Tuesday on the optimistic thought that European finance ministers will make progress in controlling the Euro Zone’s lingering debt issues. This move occurred amid reports that crude oil supplies had reached a 15-year high so it has the appearance of a “sell the rumor, buy the fact” situation.

 Concerns about supply are also driving prices higher on Tuesday. Insiders are pointing out today that some North Sea oil rigs have been slow to resume production after undergoing maintenance. Additionally, there are some concerns that an escalating conflict between Syria and Turkey could disrupt supplies from the Middle East. 

Today’s rally is flying in the face of Monday’s bearish news from the International Monetary Fund, which calls for global growth to decline to 3.3 percent from 3.5 percent last year. 

The stronger U.S. Dollar and the failure to attract fresh buying are triggering a break in December gold. The inability to breach the $1800.00 psychological level with conviction is encouraging some traders to lighten up their long positions in the hopes of re-entering at more favorable positions. 

Concerns over the Euro Zone’s peripheral economies are pressuring the EUR/USD and GBP/USD today. The Euro fell against the dollar after a meeting of Euro Zone finance ministers on Monday crushed investors’ hopes of a bailout for Spain’s troubled economy and banks. Talks crumbled when the finance ministers insisted that Madrid is able to fund some of its burden via capital markets. 

News is also surfacing that Greece is going to be given more time by international lenders to meet its debt obligations. Some feel that this is going to be difficult given the predicted slowdown in the global economy. 

The GBP/USD is under pressure today because of the weaker outlook for the global economy and the selling pressure hitting the Euro. Some traders feel that the U.K. economy will continue to suffer as long as there is economic turmoil in Europe. The economic slowdown in the U.K. could worsen now that the IMF is calling for a global slowdown. 

EUR/USD Mid-Session Analysis for October 8, 2012

The EUR/USD is trading lower at the mid-session after a steady opening. Since reaching a high at 1.3071 on Friday shortly after the U.S.employment report, the currency pair has shown steady weakness. 

Although the main trend is up on the daily chart, today’s action suggests that more downside pressure is likely. Based on the short-term range of 1.2803 to 1.3071, traders should look for a test of a retracement zone at 1.2937 to 1.2905. Today’s low hit the upper level precisely, triggering an intraday technical bounce. 

Daily EUR/USD Chart
Daily EUR/USD Chart

Further downside pressure should target the 61.8% or Fibonacci price level at 1.2905 along with the uptrending Gann angle at 1.2903. The combination of these two prices forms a near-term target and support cluster today. 

On the upside, breaking the uptrending Gann angle at 1.3003 was the first sign of weakness today. The new resistance angle is at 1.3022. This angle is dropping .001 per day and should provide guidance and direction for the market over the near-term. 

Traders should brace for both trend and counter-trend moves this week as traders await some clarity regarding Spain’s formal request for European Central Bank bailout money as well as news regarding Greece’s finances. European officials want to determine if Greece is eligible for another batch of bailout cash if it has its financial house in order.

Euro Rally on Hold as Finance Ministers Begin Key Meeting

The EUR/USD is trading lower as investors focus on the Euro Zone finance ministers’ two-day meeting in Luxembourg. At issue are the debt management efforts by several problem countries namely Greece and Spain. 

Traders will be interested in any moves by officials to mend the disagreements between Greece and the troika so that the country can receive the latest batch of bailout funding. Additionally, traders are still trying to predict when Spain will make a formal request for its rescue package. The waiting is making traders nervous, encouraging them to pair positions instead of taking on unnecessary risk. 

Uncertainty in the Euro Zone is also weighing on the GBP/USD. Because of the lack of clarity, traders are leaving the British Pound and moving into the safety of the U.S. Dollar. Additionally, investors are worried about the U.K. economy which continues to show signs of weakness. 

The government’s austerity measures are pressuring the economy because of the lack of government spending. This solution may be beneficial in the long-run but only after consumers pay a short-term price. Last week the Bank of England refrained from implementing additional stimulus, but if conditions continue to weaken, they may announce additional bond purchases next month. 

December Crude Oil is trading weaker today. Last week’s huge rise in supply triggered a sharp decline in price. With momentum pointing lower, crude oil is expected to continue to weaken. Technically oversold indicators may trigger periodic short-covering rallies, but until there is a dramatic shift in the supply/demand situation, the downtrend will not change. 

The uncertainty over Europe is helping to underpin December Gold. Both investors and speculators seem to be keeping a constant bid under the market which is preventing it from selling off when the U.S. Dollar rises. The $1800.00 level seems to be a significant resistance level. This price stopped the rally in February and last week. Based on recent performance, a drop in the dollar is likely to trigger a rally in gold, but a rally in the dollar does not necessarily mean gold will weaken. 

Besides the situation in Europe, traders are also focusing on developing weakness in China. This has the potential to unravel the global economy which would be bearish for all higher-risk assets. 

EUR/USD Mid-Session Analysis for October 5, 2012

A friendly U.S. jobs report sent the dollar lower and the Euro higher on Friday. The move was expected since the main trend is up and the market has had a bullish bias most of the week.

Friday’s action saw the EUR/USD confirming support on a 50% price level at 1.2987. Once this level was re-established, traders set their sights on the Fibonacci price level at 1.2987. An easy breakout through this level set up a test of a downtrending Gann angle at 1.3042.

Daily EUR/USD Chart
Daily EUR/USD Chart

Upside momentum continued shortly after the release of the U.S. Non-Farm Payrolls report. This was enough to trigger buy stops above 1.3042 to the high of the day at 1.3070. Buying dried up at this level as short-term oversold conditions took over the trade and investors decided to pare positions ahead of the week-end.

There is still plenty of room to the upside with 1.3107 a potential target, however, concerns that Spain is going to once again delay making its formal request for financial aid from the European Central Bank is causing investors to lighten up on their long positions at current levels ahead of the week-end. Now that the employment report is out of the way, the lack of news from Spain could hold prices in a range. This makes the retracement zone at 1.2987 to 1.3031 an important pivot area. A collapse under this zone would signal trouble ahead for the Euro. 

U.S. Job Market Continues to Improve

The U.S. Commerce Department reported this morning that the economy added 114,000 jobs in September. This figure sent the unemployment rate down to 7.8 percent, slightly under the key 8.0 percent level. The overall conclusion is that the report did not disappoint. One can conclude from the report that the non-farm payrolls number is recovering and that the number of people actively seeking work is improving. 

The Non-Farm Payrolls number is clearly in an uptrend, showing that jobs have been added for 24 straight months. Since bottoming in February 2010, the private sector has added 4.7 million new jobs. This is pretty close to where it was in January 2009.

Another sign that the jobs outlook may be improving was the drop in the unemployment rate. Since the labor force actually grew by 418,000, in other words, more people were seeking work; the unemployment rate fell to 7.8 percent.

Although the report is being perceived as friendly, the positive change is not likely to sway the Federal Reserve from continuing to provide stimulus to the economy. With that information, traders sold the U.S. Dollar, causing a slight rise in most foreign currencies.

The EUR/USD is being underpinned by the prospects for a Spanish bailout. The bias has been to the upside this week as traders feel that each day, Spain moves closer to making a formal request for financial aid. On the other hand, the rally has been spectacular because of doubts that any action will take place over the near-term. This is based on a statement by Prime Minister Mariano Rajoy who said Spain will not seek a bailout this weekend ahead of a Monday meeting of Euro Zone finance ministers.

Despite the weaker dollar, the British Pound, gold and crude oil did not participate in the rally against the U.S. Dollar. Global equity markets rose on the positive U.S. unemployment news, however, it didn’t translate into higher prices for all foreign currencies and commodities. In the U.K., investors are still concerned that austerity measures are slowing down the economy while stimulus from the Bank of England may not be enough to turn the economy.

December gold is having trouble with the psychological $1800.00 level. Early speculators may be thinking like investors now and watching the price levels. This may mean another break may be necessary to attract value-based investors. November crude oil continues to suffer from the prospect of lower demand and higher inventories. A negative close after a friendly jobs report is a sign that the near-term outlook remains weak for crude oil. 

EUR/USD Mid-Session Analysis for October 4, 2012

After trading in a tight range on Wednesday, the EUR/USD surged to the upside, taking out two previous highs at 1.2959 and 1.2967, and reaffirming the uptrend. The first target price was the 50% level at 1.2987. This was easily penetrated, allowing the Euro to easily reach the Fibonacci price level at 1.3031.

Daily EUR/USD Chart
Daily EUR/USD Chart

Early in the trading session, the market also found support on an uptrending Gann angle at 1.2923. This angle is moving .004 per day and should guide the market higher over the near-term. Downtrending resistance is at 1.3052. A breakout above this level would be a sign of strength and could trigger an even further rally to 1.3112. 

ECB Comments Give Euro a Boost

The EUR/USD edged higher on Thursday after the European Central Bank voted to leave interest rates unchanged. It also re-emphasized that it stands ready to act on any formal request for financial support. This was good news for a market that had been mired in indecision this week. The lack of clarity led to a choppy, two-sided trade. Traders have been waiting for Spain to make a formal request for financial aid. Early reports indicated that this announcement was likely over the week-end, but each day seemed to bring some rumor that a move was imminent. This uncertainty led to increased volatility.

Increased demand for higher-risk assets as well as the Bank of England’s decision to leave interest rates at historically low levels helped give the GBP/USD a boost. The currency pair was also underpinned by the central bank’s decision to leave its bond-purchase plans unchanged. Putting additional liquidity into the economy tends to weaken a currency.

December Gold rallied on Thursday as the dollar weakened. Gold seemed to follow the movement of the Euro fairly closely. Technical activity seems to be exerting a greater influence at this time on the price of gold. Speculators have kept a steady bid under the market for several days which appears to be setting up the market for a volatile breakout through the psychological $1800.00 price level.

November Crude Oil rallied after regaining the psychological $90.00 level. The drop in the U.S. Dollar was one reason for the pop in the market. Fundamentally, futures prices rose on supply concerns because of hostilities between Syria and Turkey. The Wall Street Journal reported that the Turkish parliament gave the prime minister broad power to send troops into Syria. Short-covering may be the reason for the rise after Wednesday’s sharp sell-off, but if conditions escalate then watch for speculative buying to give the market a boost.