Market Highlights:
- Overnight Marts Heed Mixed Results
- A Technical Look at Potential EURUSD Downside
- Crude Still Above $78 a Barrel
Overnight Marts Heed Mixed Results
Asian equity markets sank overnight, following yesterday’s dismal New York session that saw fresh concern over the American banking sector, coupled with a general reduction of risk. The Nikkei shed just over 150 points (-1.45%), while Hang Seng Index stumbled 420 points, bringing Hong Kong’s main index down -1.86%. As markets in the Far East closed their session with bleak results, the subsequent London gathering saw a similar tone in trading with risk taking a backseat to safer asset classes such as the greenback. A wave a dollar buying at the London open dragged EURUSD down from modest gains achieved throughout the Asian session, forcing the pair to trade back toward its weekly lows. European equities have since managed to bounce back from previously splashing around in red figures, adding a touch of support to the euro-dollar pairing. Although equity markets (especially domestic) will perpetually be a key factor in dictating USD movements, the proximity of the FOMC and the G-20 summit in the coming weeks will be sure to have a hand in the near term direction of the greenback.
A Technical Look at Potential EURUSD Downside
The American dollar has finally enjoyed a modest rally early this week as the USD Index has bounced from fresh 14-month lows. Lower stock markets, exits from bullish commodity bets, and dollar short-covering have all been catalysts in the dollar’s short term success versus a basket of major currencies. Off the back of this new found aversion to risk, EURUSD is trading close to 200 pips lower than yesterday’s highs to currently trade south of the 1.49 handle. Once the dust settled from yesterday’s major move lower, EURUSD has traded within a tight range as the majority of market participants look content to watch from the sidelines while volatility is subdued. On the technical front, a downside bias remains while EURUSD trades below the psychological 1.49 figure and a slew of simple moving averages. Although a base has seemingly been carved out at the 1.4850 region, 1.4830 is a key level that technical traders will have an eye on. The aforementioned 1.4830 is the first stop (38.2% retracement) of the Fibonacci retracement overlay, plotted from October lows to October highs. The 38.2% level significant because if this area is breached, the model suggests price action will then make an attempt on the next Fib level. A break of 1.4830 opens the door for 1.4785 (50% retracement), and if that region fails to support, the 61.8% (the most significant Fib level) sits directly at 1.4700. Not only is the 1.47 handle protected with the 61.8% Fib level, a major line of support that has remained in tact since March ’09 rests waiting to contain additional downside in EURUSD. While these levels of support may certainly come into play, USD will need to bank on equity market weakness and a continued reduction of risk in order to put them to the test.
Crude Still Above $78 a Barrel
Taking cues from mixed results in capital markets from around the globe, crude oil has experienced a similar effect, trading with varied price action. Early on, crude ascended north of $79/bbl before trading lower off news that OPEC warned it may increase supply of the commodity. Analysts are calling for a correction in crude as many see the fundamental valuation of oil as much lower than current levels. Whether overvalued or not, tomorrow’s Energy Department report of crude oil inventories will give further evidence in the great debate of where fair value in black gold should be in the grand scheme of things.
By Jamie Heighway, Market Analyst
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