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ANALYSIS

Daily Forex Market Analysis - 07 August 2012

After hitting a one-month high against the US dollar when markets opened for the week, the euro proceeded to give back some of its recent gains during the first half of the day yesterday. Investors attributed the bearish movement to investor uncertainty regarding high Spanish and Italian borrowing costs. Today, traders will want to pay attention to a batch of potentially significant news events, including the British Manufacturing Production figure as well as a speech from Fed Chairman Bernanke. Any signs that the global economic recovery is improving could result in risk taking which may help boost the euro.

Forex Market Trends

EUR/USD

GBP/USD

USD/JPY

USD/CHF

AUD/USD

EUR/GBP

Daily Trend

down

down

up

up

down

down

Weekly Trend

up

down

down

down

up

down

Resistance

1.2497

1.5685

79.33

0.9811

1.0694

0.8054

1.2447

1.5634

78.87

0.9759

1.0643

0.8002

1.2418

1.5601

78.58

0.9726

1.0611

0.7973

Support

1.2373

1.5556

78.10

0.9675

1.0558

0.7923

1.2340

1.5523

77.82

0.9642

1.0524

0.7896

1.2291

1.5474

77.36

0.9589

1.0476

0.7844

Economic News

USD - Dollar Reverses Gains against Yen

The US dollar started off this week by reversing virtually all of last Friday's gains against the Japanese yen. Analysts attributed the bearish movement to a return to risk aversion in the marketplace due to uncertainties among investors regarding plans to lower Spanish and Italian borrowing costs. The USD/JPY fell close to 40 pips over the course of the day, eventually reaching as low as 78.24. Against the Swiss franc, the greenback fell around 45 pips during the first part of the day to trade as low as 0.9683. The USD/CHF was able to stage a slight recovery and stood at the 0.9700 level by the end of the European session. 

Turning to today, traders will want to pay attention to a speech from Fed Chairman Bernanke, scheduled to take place at 18:30 GMT. The Fed Chairman has repeatedly refrained from commenting on any plans to boost the US economic recovery, which has resulted in gains for safe-haven currencies including the USD. If he once again fails to outline specific steps to get the US economy back on track, the dollar may see a boost against higher-yielding currencies, including the AUD and EUR, during evening trading. 

EUR - Euro-Zone Concerns Turn EUR Bearish

The euro gave up some of its recent gains against its safe-haven currency rivals yesterday, as doubts regarding the European Central Bank's ability to combat the euro-zone debt crisis resulted in risk aversion in the marketplace. After hitting a one-month high at 1.2442 when markets opened for the week, the EUR/USD turned bearish and eventually dropped as low as 1.2341. The pair was able to make a slight recovery, and spent most of the day trading around the 1.2390 level. Against the JPY, the euro fell more than a 100 pips after markets opened, eventually hitting 96.68 before bouncing back to the 97.00 level. 

Today, euro traders will want to continue monitoring announcements out of Spain. Analysts are warning that Spanish government is moving closer to requesting a full bailout package to aid its troubled banking sector. Any signs today that the request will soon be made could weigh down on the common currency for the foreseeable future. In addition, if the ECB continues to avoid outlining a clear plan to combat the debt crisis in the region, the euro may extend yesterday's bearish trend. 

Gold - Gold Extends Bullish Trend

Gold was able to extend its recent bullish trend during European trading yesterday, as investors remain convinced that the US Federal Reserve will need to initiate a new round of quantitative easing despite a better than expected jobs report last week. The precious metal advanced close to $10 an ounce during mid-day trading, to reach as high as $1613.05.

Today, gold could see additional gains during the evening session if Fed Chairman Bernanke indicates that the Fed is closer to beginning a new round of stimulus to boost the US economic recovery. That being said, if pessimism among investors regarding the ECB's ability to combat the euro-zone debt crisis persists, risk aversion could return to the marketplace which may result in gold reversing its recent gains. 

Crude Oil - Crude Oil Recoups Losses in Afternoon Session

After falling close to $1 a barrel during Asian trading last night, the price of crude oil was able to rebound during the second part of the day following a speech from Fed Chairman Bernanke. Investors remained convinced that the Fed will soon have to initiate a new round of quantitative easing to boost the US economy, despite a better than expected US jobs report last week. Crude gained some $.80 following the speech before stabilizing at $91.60.

Today, crude oil traders will want to pay attention to another speech from Bernanke, scheduled for 18:30 GMT. Any indications that a new stimulus plan is close to being implemented could result in risk taking in the marketplace, which may lead to further gains for oil. 

Technical News

EUR/USD

While the daily chart's Williams Percent Range is in overbought territory, indicating that downward movement could occur, most other technical indicators signal this pair is in neutral territory. Taking a wait and see approach may be the best option, as a clearer picture is likely to present itself in the near future.

GBP/USD

The Bollinger Bands on the daily chart are narrowing, indicating that this pair could see a price shift in the near future. The MACD/OsMA on the same chart has formed a bearish cross, signaling that the price shift could be downward. Traders may want to open short positions for this pair.

USD/JPY

The Williams Percent Range on the weekly chart is approaching the oversold zone, indicating that this pair could see an upward correction in the coming days. Furthermore, the Slow Stochastic on the same chart is close to forming a bullish cross. Traders will want to keep an eye on these two indicators, as they may signal an impending bullish correction in the coming days.

USD/CHF

The daily chart's Williams Percent Range has dropped into oversold territory, signaling possible upward movement in the near future. That being said, most other technical indicators show this pair range trading. Taking a wait and see approach may be the best option at this time.

EUR/USD

Pair’s Outlook

EUR/USD was unable to sustain a rally above 1.2407/56 and is currently headed towards the nearest support level at 1.2337/34.

Extension of the dip will encounter 1.2259/26, but it is also expected to give in eventually and thus pave the way to 1.2061/1.1996. In the meantime, if the rallies do occur, they are likely to be capped by a key resistance area at 1.2625/44, thereby preserving long-term bearish outlook.

Traders’ Sentiment

The Euro has returned its title of the most popular currency in SWFX marketplace, being currently acquired in 62% of cases. In the pair with the greenback, however, sentiment towards it is neutral, since 52% of traders are long and 48% are short on EUR/USD.

GBP/USD

Pair’s Outlook

Recovery of the cable proved to be short-lived as the currency pair has slipped before reaching 1.5731/74 and is rapidly returning to an uptrend support at 1.5540/17. GBP/USD has already pierced through 1.5624/08 and 1.5589, but should be stopped by 1.5540/17. Additional supports lie at 1.5466/50 and 1.5383, though are unlikely to be tested today.

Traders’ Sentiment

SWFX traders’ sentiment remains unchanged since yesterday and 48% of market participants stay bullish and 52% stay bearish on the pair. The situation with orders is quite similar and does not reveal preferences of traders as well, as 54% of orders are to buy the Sterling and 47% are to sell it against the U.S. Dollar.

USD/JPY

Pair’s Outlook

USD/JPY commences another attempt to recover after breaking out of a downtrend resistance. According to technical indicators the bullish momentum, however, is not strong enough to be capable of overcoming all the resistances that are scattered overhead and are preventing prolonged rallies. The initial obstacle is located at 78.42/43, followed by 78.71 and 78.95/79.11.

Traders’ Sentiment

The Japanese Yen is being sold on average in 75% of trades involving its crosses. Accordingly, the ratio between bulls and bears on USD/JPY is three to one, respectively. As for the orders, 57% of them are to acquire the greenback and 43% are to sell it against the Yen.

USD/CHF

Pair’s Outlook

Buying pressure at 0.9680/41 did not manage to lift the currency pair considerably, leaving it below an uptrend. Nonetheless, bullish activity by USD/CHF is still expected to be reignited, which in turn is supposed to lead to gains until 0.9952/1.0003 in the medium-term.

Notable supports are at 0.9583 and 0.9519/0.9478 and should contain dips.

Traders’ Sentiment

Being that the Swiss Franc is the second least popular currency after the Japanese Yen, an overwhelming majority of traders (71%) hold long positions, expecting USD to appreciate. On the other hand, most of orders (56%) placed on USD/CHF are to buy the swissie.