Higher-yielding assets turned bearish on Friday, as slowing economic growth throughout the euro-zone led to risk aversion among investors. Of particular concern is the possibility that France and Germany, the euro-zone’s two biggest economies, may soon slip into recession. This week, traders will want to pay attention to several potentially significant economic indicators. Today’s Eurogroup meetings followed by a German economic sentiment figure tomorrow will likely paint a clearer picture of the current economic state of the EU. Later in the week, US retail sales and manufacturing data may result in market volatility.
USD – Dollar Receives Boost amid Euro-Zone Worries
The US dollar advanced against its higher-yielding currency rivals on Friday, as concerns that the euro-zone debt crisis is spreading to the wealthier countries in the EU led to risk aversion in the marketplace. The AUD/USD fell more than 60 pips during the morning session, eventually trading as low as 1.0358. After a minor upward correction, the pair closed the week at 1.0382. Against the Swiss franc, the greenback advanced some 61 pips to trade as high as 0.9497. The USD/CHF finished out the week at 0.9482.
Today, traders will want to remember that US markets will be closed for a bank holiday. Attention should be given to any announcements out of the euro-zone with regards to the debt situations in Spain and Greece. Later in the week, a batch of US news is set to create significant volatility in the marketplace. On Wednesday, traders should note the Retail Sales, Core Retail Sales and PPI figures. Thursday promises to be another active day in the markets when the Core CPI, Unemployment Claims and Philly Fed Manufacturing Index are released.
EUR – EU Data Could Generate Additional Euro Losses This Week
Euro-zone debt fears once again weighed down on higher-yielding currencies on Friday, as speculations that economic growth in Germany may slow down in the fourth quarter of this year caused investors to shift their funds to safe-haven currencies. The EUR/USD hit a fresh two-month low during mid-day trading at 1.2688 before bouncing back to 1.2714. Overall, the pair fell more than 70 pips for the day. Against the JPY, the common-currency fell more than 100 pips during the first part of the day to trade as low as 100.41, a one-month low.
This week, traders will want to pay attention to several key euro-zone news events. Today’s Eurogroup meetings may determine if and when Greece receives its next round of bailout funds. Additionally, any mention today of whether Spain will seek its own bailout package could lead to market volatility. On Tuesday, the German ZEW Economic Sentiment will likely provide a good indicator of the current state of Germany’s economy. Any worse than expected data could lead to heavy euro losses.
Gold – Gold Remains Bullish Despite Risk Aversion
While the price of gold saw a minor drop during Friday’s trading session, the precious metal remained bullish overall despite risk aversion in the marketplace. Analysts attributed gold’s upward momentum to the re-election of US President Obama and speculations that he will keep US interest rates low for the foreseeable future. Gold finished out Friday’s session at $1730.67 an ounce, down just over $6 for the day.
This week, gold traders will want to pay attention to news out of both the US and euro-zone. If the US dollar continues making gains on the euro, gold will become more expensive for international buyers, which may result in prices falling. Conversely, any positive euro-zone data could result in the price of gold extending its recent gains.
Crude Oil – Positive US Data Boosts Oil Prices
The price of crude oil shot up more than $2 a barrel during afternoon trading on Friday, as a better than expected US consumer sentiment figure led to speculations that demand for oil in the US will increase. After trading as high as $86.72, the price of crude fell to the $86 level, where it finished out the week.
This week, oil is likely to see a volatile week, as significant news out of both the euro-zone and US is set to be released. Any signs today or tomorrow that the euro-zone debt crisis is worsening may cause the price of crude to reverse its recent gains. That being said, any better than expected US data on Wednesday and Thursday may help boost prices during the second half of the week.
While the weekly chart’s MACD/OsMA appears to be forming a bearish cross, most other long-term technical indicators show this pair range trading, making a definitive trend hard to predict. Traders may want to take a wait and see approach, as a clearer picture is likely to present itself in the near future.
The daily chart’s Williams Percent Range has crossed into oversold territory, indicating that this pair could see an upward correction in the near future. Additionally, the Slow Stochastic on the same chart appears close to forming a bullish cross. Traders may want to open long positions for this pair.
A bearish cross on the weekly chart’s Slow Stochastic indicates that this pair could see a downward correction in the coming days. Furthermore, the Williams Percent Range on the same chart appears to be approaching overbought territory. Traders may want to open short positions for this pair.
Most long term technical indicators place this pair in neutral territory, meaning that a defined trend is difficult to predict at this time. Traders may want to take a wait and see approach, as a clearer picture is likely to present itself in the near future.
The Wild Card
The Relative Strength Index on the daily chart is approaching overbought territory, indicating that a downward correction could occur in the near future. Additionally, the Slow Stochastic on the same chart has formed a bearish cross. This may be a good time for forex traders to open short positions ahead of possible downward movement.