Overnight trading coupled with the early tone in the U.S. session has for the most part been consolidative, with currency news taking a breather following heavy dollar buying on Tuesday.
Yesterday’s intense heavy volume in currency and equity markets around the world stems from renewed concerns of the state of the global economy, shaking the confidence of many traders for the first time in 2012.
The Aussie GDP data overnight came in softer than expected. That news, coupled with the earlier downgraded forecasts on China, only help to reaffirm traders’ fears of a more subdued global economy outlook ahead.
Word on the street is to expect to see more “risk off” trade over the next few sessions.
This issentiment clearly indicated via by Emerging Money’s latest heat mapping tools, which track emerging markets activity throughout the U.S. trading day.
Traders are also maintaining a radar lock on the Greek PSI talks for any market-moving news. The talks could move the markets in either direction depending on the outcome.
As if that wasn’t enough for traders to keep track of, the remainder of the week still has several major event risks with New Zealand, euro and British central bank decisions coming up in the next few days.
After that, the all-important monthly U.S. payroll numbers come out Friday morning.
A quick look at the EUR/USD technical outlook reveals that price failed to close above the $1.3500 level and subsequently broke back below $1.3350. This failure could indicate that a lower top is finally in place ahead of the next major downside extension below the 2012 lows around $1.2620.
In order for price to break lower, the short-term trendline — currently acting as support from the 2012 lows at $1.3150 — will need to be broken by a full candle, at which time price could accelerate below the 2012 lows.
Meanwhile the Emerging Money Heat Maps have indicated a strong upward move in the yen. Taking a closer look at the yen, traders find the potential for the formation of a major cyclical bottom after taking out the 200-day moving average and clearing psychological barriers of 80.00 over the last six months.
Given the prospects that USD/JPY is undergoing a major bullish structural shift, this could expose JPY to a 85.00-90.00 range over the next few months. The outlook for the JPY is very positive and only a break in price action back below 77.00 could delay the bullish outlook and give the bulls reason for concern.
The euro and yen can be traded via the forex market or through the equities market via currency ETF’s.
Euro: The CurrencyShares Euro Trust (FXE, quote) ETF seeks to track the price of the euro, net of trust expenses. The sponsor believes that, for many investors, the shares represent a cost-effective investment relative to traditional means of investing in the foreign exchange market.
Yen: The CurrencyShares Japanese Yen Trust (FXY, quote) ETF seeks to track the price of the Japanese yen, net of trust expenses. Here too, the sponsor believes that, for many investors, the shares represent a cost-effective investment relative to traditional means of investing in the foreign exchange market.