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.

 

 

EUR/USD Mid-Session Analysis for October 3, 2012

The EUR/USD is trading higher but today’s high is below the previous day’s high at 1.2967. The market has had a choppy week. On Monday, the Euro broke through the previous swing bottom at 1.2828, turning the main trend to down on the daily chart. There was no follow-through to the downside as the market traded into a major 50% price level at 1.2824.

Daily EUR/USD Chart
Daily EUR/USD Chart

Following a quick reversal to the upside, the EUR/USD took out the previous swing top at 1.2959 on Tuesday. This changed the main trend back up. The rally stopped, however, on a Gann angle at 1.2972. The actual high was 1.2967. This angle drops to 1.2952 today.

With a major economic report coming out on Friday and a major announcement from the Euro Zone at any time, there is a bias developing to the upside. The main trend is now up so traders should watch for a pull-back into a short-term retracement level at 1.2885. If that holds as support then look for another drive to the upside. A breakout over 1.2967 could trigger an acceleration into 1.2987 to 1.3031.

 

Weak Data from Europe, China Sinks Crude Oil

November Crude Oil futures traded sharply lower on Wednesday after Europe and China reported weak economic data. The reports dimmed the outlook for demand, leading investors to make price adjustments to accommodate higher inventories. Traders blamed concerns arising from Europe’s lingering debt crisis as the main reasons for the weak reports.

It was reported early in the trading session that China’s official purchasing managers’ index for the services sector fell to 53.7 in September from 56.3 in August. Reports out of Europe that the economy would not show growth before 2013 also hurt demand for crude oil. Although it has not been officially reported yet, the reaction to the European data suggests that the Euro Zone may have returned to a recession during the third quarter. Traders cite dwindling new order and faster layoffs as two of the main reasons to believe in an economic slowdown in the Euro Region.

The weakening economy also led to a drop in oil consumption. Retail sales also failed to meet expectations. One clue that traders are bracing for more negative news was the failure of the oil market to rally after the release of friendly employment data from ADP.

Now that oil has backed away from $100 per barrel, it could be destined to test the low end of the trading range with a break to $80 -$70 over the next 6 months. One constant that has been underpinning crude oil has been the possibility of military action in the Middle East. This issue doesn’t look like it is going to go away so oil prices should collapse, but may weaken from here.

The EUR/USD traded lower today. On Monday traders tried to break it to the downside but selling pressure dried up. On Tuesday, an attempt was made to drive it higher, but that also failed. Uncertainty as to whether Spain would make a formal request for European aid is causing the choppy, two-sided trade. Earlier in the week, traders were reacting as if the news was imminent, but these hopes were crushed when Spanish Prime Minister Rajoy said that nothing is expected to be done over the near-term and that there are still differences to be worked out.

The weaker Euro and commodity markets were clear signs that risk was off today. This led to a rally in the U.S. Dollar. The British Pound was also pressured by the lack of demand for higher-yielding assets. Traders were also pressuring the GBP/USD on the thought that the UK Services report would show a weakening economy.

Surprising, December Gold has held firm despite the stronger Dollar. Earlier in the week, the market reached a new high for the year and has held on to most of its recent gains. Speculators and investors are both supporting the market at current levels. Uncertainty about the future of the Euro seems to be the most important bullish factor. 

EUR/USD Mid-Session Analysis for October 2, 2012

The EUR/USD is trading better at the mid-session but trading has been range bound on low volume. Traders are waiting for Spain to make a formal request for financial aid from the European Central Bank. The announcement appears to be imminent but traders appear to be shy about taking a position ahead of the news to avoid disappointment.

Daily EUR/USD Chart
Daily EUR/USD Chart

Technically there was little follow-through to the upside following Monday’s closing price reversal bottom. The daily chart indicates that the main trend is down and that a move through 1.2959 will turn the main trend up.

The first resistance price is a downtrending Gann angle at 1.2972. This is followed by a retracement zone created by the 1.3172 to 1.2803 range. This zone is at 1.2987 to 1.3031. This is the first objective of the reversal bottom, however, if bullish news hits the market then look for the Euro to accelerate through this zone.

On the downside, solid support comes in at 1.2824, 1.2803 and 1.2741. 

Silver Fundamental Analysis October 3, 2012, Forecast

Silver, like other commodities, equity markets and currencies will be influenced the most by the movement in the U.S. Dollar on Wednesday. The key to understanding where Silver may move will be determined by watching the fundamentals that affect the dollar.

The U.S. Dollar will be most influenced on Wednesday by two events. The first is the ADP Non-Farm Employment Change. This report will give traders an indication as to what to expect from Friday’s U.S. Non-Farm Payrolls report. A bullish report would drive down the dollar while driving up Silver. A bearish report will have a negative effect on silver since the Greenback would likely appreciate.

Silver could also rise if Spain makes a formal request for aid from the European Central Bank. This would be bullish for the Euro and other higher-yielding currencies. The dollar would weaken on the news, making commodities priced in dollars cheaper, driving up demand. 

NZD/USD Fundamental Analysis October 3, 2012, Forecasts

The single biggest influence on the NZD/USD is likely to be demand for higher risk assets. This decision will be controlled by whether Spain makes a formal request to the European Central Bank for financial aid or the outcome of the ADP Non-Farm Employment Change report.

On Wednesday ADP releases its assessment of the U.S. jobs picture.  This report will give investors a heads up on what to expect from Friday’s U.S. Non-Farm Payrolls report. If the number is bullish then demand for higher risk will rise, pressuring the U.S. Dollar. This will give the New Zealand Dollar a boost. If the report shows weakness then look for the NZD/CAD to weaken.

Another factor that may drive up the New Zealand Dollar will be demand for higher risk assets fueled by a formal request from Spain to the European Central Bank for financial aid. Traders are waiting for this to take place and it could trigger a sharp rise in global equity markets and commodities.  Since interest rates in New Zealand are higher than rates in the U.S., investors may buy the currency pair in an effort to capture the better yield. 

USD/CAD Fundamental Analysis October 3, 2012, Forecasts

On Wednesday the focus will be on the ADP Non-Farm Employment Change. This report will give investors a heads up on what to expect from Friday’s U.S. Non-Farm Payrolls report. If the number is bullish then demand for higher risk will rise, pressuring the U.S. Dollar. This will give the Canadian Dollar a boost. If the report shows weakness then look for the USD/CAD to strengthen.

Another factor that may drive up the Canadian Dollar is demand for higher risk assets that could come about if Spain makes a formal request to the European Central Bank for financial aid. Traders are waiting for this to take place and it could trigger a sharp rise in global equity markets and commodities – namely gold and crude oil. Since the prices of these two commodities exert a major influence on the Canadian economy, its currency could benefit from price appreciation. 

AUD/USD Fundamental Analysis October 3, 2012, Forecast

On Wednesday, the AUD/USD could see some follow-through selling pressure following Tuesday’s interest rate cut.  After months of debate, the Reserve Bank of Australia finally cut rates because of uncertainty over global growth, China, Europe and the U.S. This action drove down the Australian Dollar versus the U.S. Dollar.

Losses may be limited on Wednesday if Spain makes a formal request for financial aid from the European Central Bank. This decision could drive up demand for higher risk assets. Although interest rates were cut in Australia, its 3.25% is still higher than U.S. rates, making it a higher-yielding asset. Bargain hunters may try to take advantage of the lower prices and buy the Aussie Dollar at relatively cheap levels.

If Spain doesn’t make the request then demand should be weak for the Australian Dollar, driving it lower against the U.S. Dollar. 

EUR/JPY Fundamental Analysis October 3, 2012, Forecasts

The EUR/JPY could rise on Wednesday if Spain decides to finally make a formal request for financial aid from the European Central Bank. Once Spain makes the request and it is accepted, the ECB will be allowed to implement its distressed bond purchasing program. This action will drive up demand for risky assets, pressuring the Japanese Yen against most major currencies.

There are a few minor economic reports from Europe on Wednesday, but none that are clear market movers. The primary focus continues to be on Spain and whether it can start the ball rolling with regards to fresh bailout money.

Since the Japanese Yen is relatively high, there is always the possibility of fresh intervention from the Bank of Japan. A surprise intervention would weaken the Yen and trigger a surge in the Euro.  

EUR/GBP Fundamental Analysis October 3, 2012, Forecasts

The EUR/GBP could rise on Wednesday if there is further confirmation that Spain is getting ready to announce that it has formally requested bailout money from the European Central Bank. Once Spain makes the request and it is accepted, the ECB will be allowed to implement its distressed bond purchasing program.

There is a bank holiday in Germany on Wednesday, but investors will still be given a chance to react to economic reports from other Euro Zone members. Both Spain and Italy are expected to report drops in their respective services PMI. Month-to-Month Retail Sales will also be reported. The surprise from these reports will be to the bullish side since most analysts’ expect sideways-to-lower trends.

The big story remains Spain and its request for a bailout. This news will move the market. 

GBP/USD Fundamental Analysis October 3, 2012, Forecasts

Tuesday’s rise in the GBP/USD is a strong indication that the direction of the U.S. Dollar is having a bigger influence on the British Pound than U.K. economic reports. Early in the trading session, the U.K. reported a drop in the amount of approved mortgage claims in August. This pressured the British Pound somewhat but any weakness was offset by the weaker dollar.

On Wednesday, traders should watch the dollar’s reaction to the U.S. ADP Employment Change. This report gives investors an idea of what to expect on Friday when the U.S. announces its September Unemployment figures. A bullish number will mean risk is on, triggering a rise in the GBP/USD.

Another outside event to watch for is an announcement from Spain that it has formally requested aid from the European Central Bank. This news will drive up the Euro while weakening the U.S. Dollar. The weaker dollar will increase demand for higher yielding assets including the British Pound. 

USD/JPY Fundamental Analysis October 3, 2012, Forecast

Trader sentiment is likely to drive the USD/JPY in either direction on Wednesday. If it is a “risk on” day then look for the Forex pair to rally as traders sell the Yen to buy higher yielding assets. If investors decide that risk is off then look for the USD/JPY to strengthen as investors will pull out of higher risk assets and return to the safety of the lower-yielding Yen.

What can trigger fresh demand for higher risk? Although it may not actually be a surprise anymore, Spain may announce overnight that it has formally requested aid from the European Central Bank. Another reason the U.S. Dollar would rise against the Japanese Yen would be an intervention by the Bank of Japan. It is no secret that the Japanese government wants to see a lower currency so the closer it moves to its all-time higher, the more likely the government will take action.

Traders should also watch the market’s reaction to the U.S. ADP Employment Change on Wednesday. This report gives investors an idea of what to expect on Friday when the U.S. announces its September Unemployment figures. A bullish number will mean risk is on, triggering a rise in the Dollar/Yen. 

Euro Traders Waiting for Spanish Bailout Announcement

The EUR/USD received a boost today as talk of a Spanish bailout provided some optimism for traders while fueling demand for risky assets.

Without naming its sources, Reuters reported that Spain was prepared to ask for a full sovereign debt bailout as early as this weekend. Investors would welcome this news because it would allow the European Central Bank to initiate its bond purchasing program.

Gains were somewhat limited on reports; however, that Germany may be standing in the way of progress as the Reuters’ report went on to say that the Germans were pressuring Spain to delay its request until political issues in Germany’s parliament could be worked out. It looks as if German officials would prefer to combine the Spanish aid package with requests from Cyprus and Greece rather than address them one at a time. The report has been dismissed by European officials, adding to the uncertainty hovering over the market at this time.

The weaker dollar helped to underpin the British Pound but gains were limited by the news that the amount of approved mortgage claims declined in August. The fact that claims missed analysts’ expectations caused bullish traders to back away from chasing the market, allowing the GBP/USD to settle into a range.

Despite the weaker U.S. Dollar, December Gold traded flat-to-lower.  On Monday, the market reached a new high for the year, but there wasn’t any follow-through buying overnight. Uncertainty over the Spanish bailout request may be keeping traders on the sidelines or prices may just be too high.

November Crude Oil also traded sideways-to-lower. With very little fundamentals to react to, other than the weaker U.S. Dollar, traders have chosen to stand aside until Wednesday’s supply and demand report is released. Because of a slowdown in the global economy, traders are expecting demand to be down and supply to be up. 

EUR/USD Mid-Session Analysis for October 1, 2012

Early in the trading session, the EUR/USD broke through a recent swing bottom at 1.2828, turning the main trend to down. There was no follow-through to the downside, however, as the market reversed course to the upside after testing a major 50% price level.

From late August to Mid-September, the Euro rallied against the U.S. Dollar from 1.2465 to 1.3172. This range created a retracement zone at 1.2818 to 1.2735. The upper level of this range became support today, triggering the intraday reversal.

Daily EUR/USD Chart
Daily EUR/USD Chart

Although the main trend is down on the daily chart, the strong rally and close has the market in a position to turn the trend to up once again on a rally through the new swing top at 1.2959.

 

Traders shouldn’t expect too much of a rally initially however, since downtrending Gann angle resistance drops in at 1.2972 and another retracement zone at 1.2987 to 1.3031. Until these resistance areas are overcome, look for a choppy, two-sided trade. 

Crude Oil Fundamental Analysis October 2, 2012, Forecast

Oversold conditions and a weaker U.S. Dollar could give crude oil futures a boost on Tuesday. Monday’s stronger than expected U.S. PMI Manufacturing report helped boost prices on the perception of greater future demand, but the rally was not enough to change the trend to up. At this time, we are looking for a 2 to 3 day rally in a bear market. The PMI may provide a short-term relief for the market, but talk of a recession in Europe may put a lid on any sizable advances. 

With the main trend down and the fundamentals still showing too much supply, traders may treat the current rally as a new selling opportunity. Traders should be careful buying strength since retracements are inevitable. Until the market establishes a solid support base, look for a choppy, two-sided trade. The next major supply and demand report is due on Wednesday so don’t expect traders to commit to either side of the market until this week’s numbers are revealed. 

Natural Gas Fundamental Analysis October 2, 2012, Forecast

Now that seasonal demand has lightened and buyers have for the most part hedged their purchases and sellers, their production, Natural Gas futures may become range bound. The long-term technical picture appears to be forming a support base, but due to the large number of shorts still in the market, it may take several more months of sideways action before an actual meaningful rally takes place. 

This week’s natural gas report on Thursday is expected to show an increase in inventory since demand has been light due to the fact that summer is over and the colder weather has not started yet in the U.S. Because of this, the market is likely to move sideways to lower over the near-term. Since natural gas is primarily used domestically, a weaker U.S. Dollar should have little or no impact on prices.