A couple of events led to the weakness in the EUR/USD today. Firstly, the sell-off in global equity markets triggered by an unexpected bearish report by Google, crushed demand for higher risk assets. This event sent traders running to safety of the U.S. Dollar.
Secondly, an agreement early Friday by the leaders of the 17 Euro nations to promote a single supervisory body failed to garner investor support. Concerns were raised because once again, officials came back with a vaguely worded proposal. Investors are also questioning the urgency of the European officials now that the Euro has stopped free-falling. With interest rates dropping in Spain and Italy, EU officials seem to have lost interest in fixing things quickly. The charts indicate the EUR/USD may break to 1.2979 to 1.2943.
The weakness in the global equity markets is also spilling over to the British Pound. The current downswing actually began late Thursday when U.S. equity traders dumped shares following the bearish news regarding Google. This led to a shift in investor sentiment, encouraging investors to move money back into the safety of the U.S. Dollar.
The GBP/USD is set to finish the week lower after a promising start to the week. Thursday’s reversal to the downside has helped form another lower top at 1.6178, keeping the current down trend intact. Support could come in at 1.6052 to 1.5976, but don’t expect a change in trend to up until the U.S. Dollar takes out key support and investors return to a “risk-on” mode.
The stronger dollar also pressured December Gold. Since trading to nearly $1800.00 a few weeks ago, gold has felt pressure as some of the uncertainty in the markets has been lifted. Additionally, after the Fed’s new stimulus plan was announced, money seemed to flow into equities instead of into gold. Now that investors are treating gold as an investment rather than a reserve currency, they are not likely to re-enter on the long side until it reaches a value zone. The charts have identified this as $1722.60 to $1704.78.
December Crude Oil held steady despite the stronger dollar. The way the market has been trading lately, it appears to have reached a balance point. The charts indicate resistance at $94.22 to $95.75 and support at $89.79 to $87.20. Currently, crude oil is trading between both of these zones. Since the main trend is down on both the weekly and daily charts, this could be a distributive formation. With supply high and the economy improving, it could also mean that traders are anticipating greater demand.