Daily Forex Market Analysis |20 February 2012

Following a hectic several days last week that saw the euro drop to a three-week low against the US dollar, the common currency may finally see some relief today. A scheduled meeting of euro-zone finance ministers is forecasted to result in Greece receiving a much needed bailout package. If a bailout deal is agreed to, analysts are predicting that the euro could see modest gains. At the same time, should the meeting of finance ministers come to the conclusion that Greece has still not done enough to merit receiving the bailout, the common currency may see additional losses to start out the week.

Forex Market Trends – 20 February 2012

Economic News

USD - Euro-Zone News Forecasted to Influence USD Today

The US dollar closed out last week on a mixed note, as it was able to maintain gains against the Japanese yen while taking losses against the euro. A positive US Unemployment Claims figure on Thursday helped contribute to investor optimism in the US economic recovery, and resulted in the USD/JPY closing Friday's session at 79.55. That being said, expectations that Greece will receive its long sought after bailout package when euro-zone finance ministers meet today resulted in some risk taking during Friday's session. The news helped lift the EUR/USD above its recent three-week low, and the pair was able to close out the week at 1.3143.

Turning to today, a bank holiday in the US means that dollar levels will likely be decided by European news. Traders will want to pay particular attention to the results of the euro-zone finance ministers meeting. If the meeting results in Greece receiving its bailout package, risk taking may occur in the markets, which could result in the safe-haven greenback taking losses against some of its main currency rivals. That being said, even if Greece does receive its bailout, it is still uncertain whether the country will be able to avoid defaulting on its debt. Any signs that the Greek crisis will continue could result in investors reverting their funds back to more secure currencies, like the USD.

EUR - All Eyes on Euro-Zone Meeting Today

Investor optimism that Greece could finally receive a bailout package today resulted in modest risk taking during Friday's trading session. The news led to the euro seeing gains against its safe-haven currency rivals, including the US dollar and Japanese yen. The EUR/USD was able to close out the week at 1.3143 after dropping below the psychologically significant 1.3000 level and hitting a three-week low. The EUR/JPY closed out Friday's session at 104.57, up over 100 pips from the day's low of 103.45.

While most analysts are convinced that a Greek bailout package will be agreed to today when euro-zone finance ministers meet, how the bailout will impact the euro is still unknown. First of all, some euro-zone countries are still not convinced that Greece will be able to implement the harsh austerity measures it pledged to in return for the bailout. Secondly, it is still unclear if the 130 billion euro rescue package will be enough for Greece to avoid defaulting on its debt. 

These uncertainties may limit euro gains today, providing the agreement on the bailout is even reached. Traders should note that the euro-zone is still in a very fragile state, and any additional negative news out of the region could result in the common currency tumbling. That being said, short-term euro gains may occur today if investors see the meeting as positive and shift their funds to riskier assets.

JPY - BOJ Measures Continue to Weaken Yen

Last week's announcement that the BOJ will increase its asset buying plan by $130 billion continued to weaken the Japanese yen during Friday's trading session. Against the dollar, the yen closed out the week at 79.55, its highest level since last October. Losses were also taken against the euro on Friday, as optimism regarding the prospects of a Greek bailout deal resulted in investors moving away from safe-haven currencies like the yen.

Turning to today, traders will want to keep an eye the euro-zone finance ministers meeting as it will likely determine risk appetite in the marketplace. Positive news with regards to the Greek bailout could result in investors sticking with riskier currencies, which may end up bringing the yen lower. At the same time, any further complications with the Greek situation could lead to the JPY reversing its current trend against the euro. 

Crude Oil - Crude Oil Rises Above $104 a Barrel

The combination of positive US economic indicators, optimism regarding a Greek bailout package and ongoing tensions between Iran and the West, helped crude oil maintain its bullish trend to close out last week. The April contract for the commodity reached as high as $104.26 a barrel during Friday's trading session.

Turning to this week, traders will want to continue monitoring the situation in the euro-zone, as it will likely influence risk appetite and affect the price of crude oil. Any positive developments in the Greek debt crisis could result in oil maintaining its bullish trend. Additionally, should tensions between Iran and the West continue to escalate, supply side fears may lead to further upward momentum for oil. 

Technical News

EUR/USD

Most long-term technical indicators place this pair in neutral territory, meaning that no defined trend is known yet for this week. The one exception is the Slow Stochastic on the weekly chart, which has formed a bearish cross. Traders will want to keep an eye on the Relative Strength Index on the same chart. Should it move into the overbought zone, a downward correction may take place.

GBP/USD

The Slow Stochastic on the weekly chart has formed a bearish cross, indicating that downward movement could occur in the coming days. This theory is supported by the Williams Percent Range on the daily chart, which is currently hovering around the -20 level. Going short may be a wise choice for this pair.

USD/JPY

After several weeks of upward movement, technical indicators are now showing this pair as overbought. The Williams Percent Range on the weekly chart has crossed into overbought territory and is now angling downward. Meanwhile, the daily chart's Relative Strength Index has remained steady at 90, indicating that the pair has run out of bullish momentum. Going short may be the wise choice for this pair.

USD/CHF

The Slow Stochastic on the weekly chart has formed a bullish cross, indicating that the pair could see upward movement in the coming days. That being said, most other long term indicators place this pair in neutral territory. Traders may want to take a wait and see approach for this pair.