Dollar Falls as Risk Appetite Rises

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The euro gained against the U.S. dollar and Japanese yen in late trading Tuesday as stronger Japanese equities prompted investors to buy back the risk-sensitive currency, pushing it further off the two-week low against the greenback that it marked Monday. By yesterday’s close, the euro rose to $1.3630 from $1.3590 late Monday.

USD

Dollar Falls as Investors Turn to Riskier Assets

The U.S. dollar fell against the euro in late trading Tuesday after China announced that it would raise rates. Investors have also become less worried about the unrest in Egypt, moving away from the dollar and looking to invest in riskier currencies. By yesterday’s close, the USD fell against the EUR, pushing the oft-traded currency pair to 1.3630.

China’s central bank said Tuesday that it would raise deposit and lending interest rates by a quarter percentage point, the second time China has raised rates in over a month. The U.S. dollar had been gaining against the euro since late January when protests erupted on the streets of Egypt and investors were looking to invest in safe havens, such as the U.S. dollar. But investor concerns about Egypt have eased somewhat, analysts have said, pushing riskier currencies higher against the dollar Tuesday.

Looking ahead to today, the most important economic indicator scheduled to be released from the U.S. is the Crude Oil Inventories figure at 15:30 GMT. Traders will be paying close attention to today’s announcement as a stronger than expected result may boost the USD in the short-term. Traders are also advised to follow Fed Chairman Bernanke’s testimony at 15:00 GMT. This testimony is very likely to impact the dollar’s volatility. Traders are advised to watch closely, as this is likely to set the pace of the dollar going into the rest of the day’s trading.

EUR

EUR Moves Up against Safe Havens

The euro recovered on Tuesday, lifted by demand from Asian central banks, and buying against the Australian dollar, after a Chinese interest rate hike fueled concerns over its growth, as well as demand for commodities. As a result, the EUR gained 0.3% versus the greenback to $1.3630 as investors booked profits on long dollar positions taken in the last four days. The 17-nation common currency experienced similar behavior against the GBP and closed at 0.8480.

Gains in the euro were muted after a weaker-than-expected reading of German industrial output for December on Tuesday. That followed a dismal industrial orders report the previous day, leading to a sell-off in the common currency and a two-week low of $1.3507 against the USD.

Investors may look for the unusual price volatility to continue in the EUR/USD as the pair attempts to stabilize and find new support and resistance lines. Large price jumps such as these are not commonplace and present terrific opportunities to take advantage of the price swings for large profitable gains.

JPY

Yen Sees Mixed Results vs. Majors

The Japanese yen completed yesterday’s trading session with mixed results versus the other major currencies. The JPY was broadly unchanged versus the USD yesterday and closed its trading session around the 82.30 level. The JPY also saw bullishness against the GBP as it jumped around 60 points and closed at 1.3220.

Traders today have very little fundamental news emanating from Japan as the only major indicator being released is the Core Machinery Orders report. Analysts forecast the figure to increase from its previous reading. This indicator typically generates small amounts of volatility. However, the EUR and the USD appear to be clutching the reins of today’s market. Traders would be wise to note its future direction as it usually carries a heavy impact on the other currencies.

Crude Oil

Crude Oil Inventories Data to Drive Oil Trading Today

Oil prices fell sharply in the last few days to settle around $87.40 a barrel as concerns about Egypt’s political turmoil eased and investor focus returned to rising U.S. inventories and a tepid employment picture.

A new cabinet met in Egypt, easing investor fear that the unrest started in Tunisia could affect oil producer countries.

Today, the commodity is likely to drop further following the US Crude Oil Inventories figure, set to be released at 15:30 GMT. Typically, a surplus in US stockpiles means that the price of oil will go down, as it means that demand is down in the world’s largest crude oil consuming country.

Technical News

EUR/USD

The pair has been range-trading for a while now, with no specific direction. The daily chart’s Slow Stochastic is providing us with mixed signals. The 4-hour charts do not appear to be providing a clear direction either. Waiting for a clearer sign on the hourlies chart might be a good strategy today.

GBP/USD

The GBP/USD went increasingly bearish yesterday, and currently stands at the 1.6060 level. The daily chart’s Slow Stochastic supports this currency cross to fall further today. However, the hourly chart’s RSI signals that a bullish correction could take place. Entering the pair when the signs are clearer seems to be the wise choice today.

USD/JPY

The 4-hour chart is showing mixed signals with its RSI fluctuating in neutral territory. However, the 8 hour chart’s RSI is already floating in the over-bought territory, indicating a bearish correction might take place in the nearest future. In that case, traders are advised to swing in after the breach.

USD/CHF

The pair recorded much bullish behavior yesterday. However, the technical data indicates that this trend may reverse soon. For example, the 8-hour chart’s RSI signals that a bearish reversal is imminent. Going short with tight stops might be a wise choice.

The Wild Card

Crude Oil

Crude Oil prices are once again dropping, and are currently trading around $87.20 a barrel. As of this morning, the 8-hour chart’s RSI was giving bullish signals, indicating that crude oil prices might go up today. This could give forex traders a great opportunity to enter a very popular trend early.

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