Euro Sees Highest Weekly Gains vs Dollar since May 2009

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The euro gained about 580 pips against the U.S. dollar in last week’s trading session, following strong debt sales in Spain, Italy and Portugal. This has increased risk-appetite in the market and as a result weakened the Japanese yen and supported crude oil. Disappointing economic releases from the U.S. have also added to the greenback’s weakness.

USD

Dollar Tumbles on Disappointing U.S. Economic Data

The U.S. dollar saw a sharp bearish trend against its major currency rivals during last week’s trading session. The dollar dropped more than 550 pips vs. the euro, and the EUR/USD rose above the 1.3400 level. The dollar saw a sharp decline against the British pound as well, and the GBP/USD pair gained about 400 pips.

The dollar tumbled last week after reports showed that the U.S. economy is recovering at a slower pace than previously estimated. Initial Jobless Claims in the U.S. rose last week for the first time since November. The number of first-time claims for unemployment benefits jumped in the first week of 2011 by 35,000 to 445,000 individuals, well above expectations for 405,000 claims.

The U.S. Preliminary Consumer Sentiment survey unexpectedly fell in January. The Thomson Reuters/University of Michigan index of consumer sentiment dropped to 72.7 from 74.5 a month earlier. The index failed to reach projections of 75.5, indicating that U.S. consumers still lack confidence regarding their financial outlook.

As for the week ahead, many interesting economic releases are expected from the U.S. Traders are advised to focus on the Long-Term Purchases, Building Permits, weekly Unemployment Claims, Existing Home Sales and the Philadelphia Manufacturing Index. If the end results of the reports will provide disappointing data as well, investors will see it as another indication that the economy is sluggish, and the greenback might see further bearishness as a result. Traders should note that U.S. banks will be closed today in observance of Martin Luther King Day.

EUR

Euro Rallies Following Strong Debt Sales in Portugal, Spain and Italy

The euro advanced against all its major currency counterparts during last week’s session. The euro strengthened the most since May 2009 against the U.S. dollar, gaining about 580 pips in a week. The euro also gained about 400 pips against the Japanese yen, and about 200 pips against the British pound.

The euro strengthened last week after auctions of Portuguese, Spanish and Italian debt generated more demand than expected. Those nations are considered to be at risk to seek financial bailout in the future due to the ongoing sovereign debt crisis. The strong debt sales have boosted demand for euro, as it enhanced investors’ confidence regarding the stability of the 17-nation currency. In addition, Germany’s Chancellor Angela Merkel provided further support for the euro, after pledging to do whatever is necessary to ease the sovereign debt crisis.

It currently seems that the market is showing signs of renewed confidence in the euro-zone’s economies, and as a result in the euro itself. Considering the somewhat surprising turn of events, large volatility could be expected in euro-trading in the near future, which will provide forex traders opportunities to see unusual profits.

Looking ahead to this week, a batch of data is expected from the euro-zone. Special attention should be given to the German ZEW Economic Sentiment and the German Business Climate reports as these are likely to have a large impact on the euro. Traders should take under consideration that if the major reports will fail to reach expectations, the euro may erase its profits from the past week.

JPY

Yen Falls as Risk Appetite Increases

The Japanese yen fell against most of the major currencies during last week’s trading session. The yen fell about 400 pips vs. the euro, and the EUR/JPY pair has reached as high as the 110.97 level. The yen also saw a 250 pip gain against the British pound, and the GBP/JPY cross is trading near the 131.50 level.

The yen fell against most of its major currency counterparts last week because of higher risk-appetite in the market. The higher than expected demand for the European debt sales has boosted optimism regarding the euro-zone’s stability. This has strengthened currencies that are considered to be relatively risky such as the euro and the pound, and has also supported commodities such as crude oil. At the same time, this has also reduced demand for the yen as a safe haven.

Looking ahead to the this week, the most significant news releases from the Japanese economy look to be the Tertiary Industry Activity on Tuesday and the All Industries Activity on Friday. Positive data will show that the Japanese industry is expanding, and is likely to support the JPY.

Crude Oil

Crude Oil Closes a Bullish Weekly Session at $91.60 a Barrel

Oil prices strengthened during last week’s trading session, and a barrel of crude oil reached as high as $92.37. Crude began last week’s trading around $88.00 a barrel, and gained over 400 pips. Crude is currently trading near $91.50 a barrel.

After seeing a minor technical correction on Thursday, crude climbed once again on Friday after U.S. Retail Sales and Industrial Production rose in December, indicating that fuel demand in the world’s largest energy consumer is likely to strengthen. In addition, estimates that Chinese consumption of energy will increase by 4.8% in 2011, after rising 11% in 2010, have also supported oil prices.

As for the following week, traders are advised to follow the leading economic releases from the U.S. and the euro-zone, as they usually have a large impact on crude prices. Traders should also focus on the U.S. Crude Oil Inventories report, which is scheduled for Thursday, as this release tends to have an immediate impact on the market

Technical News

EUR/USD

The EUR/USD pair gained about 580 pips during the past week, and is currently trading near the 1.3350 level. However, as the 4-hour chart’s RSI seems like it is about to fall below the 70-line, the pair might see a bearish correction today. Going short with tight stops seems to be the right strategy today.

GBP/USD

The GBP/USD pair has recently seen three failed attempts to breach through the 1.5890 level. Now, a bearish cross is taking place on the daily chart’s Slow Stochastic, suggesting that a downward reversal may be impending. Going short appears to be the right choice today.

USD/JPY
The USD/JPY pair has been trading within a restricted range for a couple of weeks now. Currently, as both the RSI and the MACD on the daily chart are providing bullish signals, the pair looks to test the 83.60 level. If the pair will cross the resistance level, it has potential to reach towards 84.50.

USD/CHF
After peaking at the 0.9780 level about two weeks ago, the pair is slowly correcting its gains, and is currently trading near the 0.9650 level. A bearish cross on the Slow Stochastic on both the 4-hour and the daily charts indicates that the pair might proceed with the bearish correction today.

The Wild Card

Gold
Gold prices have mostly fallen for the past week, and an ounce of gold was trading for as low as $1,353. Currently, as a bearish cross takes place on both the daily chart’s MACD and Slow Stochastic, the bearish move looks to extend today, with potential to reach $1,340 an ounce. This might be a great opportunity for forex traders to join a very popular trend.

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