Spain’s Woes Driving Investors Out of Risky Assets

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It’s a risk off day as investors in higher-risk assets once again are heading to the sidelines, driven by sovereign debt issues in the Euro Region. The tone of the market was set over the week-end when the International Monetary Fund announced it was set to stop financial aid to Greece. Additionally, interest rates in Spain crept back above 7% signaling new concerns for investors.

The IMF threw additional fear into the market over the week-end when it announced it will suspend aid to Greece. The major concern from the lenders is whether Greece is doing enough to cut back on spending to qualify for further financial aid.

Investors are also worried that Spain will be the fourth Euro Zone member to seek a major bailout. Concerns were raised on Friday that several regions in Spain will be asking for aid from the central government. With additional regions seeking to tap the liquidity fund, investors are concerned that Spain will have to go back to the European community to ask for additional funding.

The EUR/USD gapped lower on the opening from 1.2144 to 1.2138. Heavy selling pressure ensued driving the market lower and closer toward its June 2010 bottom at 1.1876. Other than oversold conditions, there is nothing bullish in the news today that could turn this market higher.

The GBP/USD is also getting hit by heavy selling pressure. General liquidation and fresh shorting is the catalyst behind today’s break. A few technical areas were also violated including a 50% price level at 1.5390 and an uptrending Gann angle at 1.5532. The strong downside momentum could fuel a break into another uptrending Gann angle at 1.5462. Like the Euro, oversold indicators could trigger an intra-day retracement, but not necessarily a change in trend.

Fear is causing global investors to flock to the U.S. Dollar for safety. This is driving the Greenback to its highest level since July 2010. Commodities such as gold and crude oil are falling as the dollar strengthens. When the dollar rallies, the tendency is for commodities priced in dollars to break because of a drop in demand.

December Gold is trading sharply lower in response to the stronger dollar. The weakness in the gold is threatening a pair of bottoms near $1559.50 and $1552.00. This is a complete turnabout from last week when gold was threatening to breakout to the upside. Currently, gold is trading inside of a huge triangle chart pattern on the daily and weekly charts. This type of formation is non-trending and often leads to a volatile breakout when support or resistance is violated. Look for gold to continue to press the downside; however, since the metal is often treated as an investment, bottom-pickers may step in at any time to slow down the market’s descent.

September Crude Oil fell from the get-go overnight as the rising dollar stopped demand. Traders set aside Middle Eastern fears and decided to focus on the problems in the Euro Zone, triggering a huge profit-taking break. Technically, the market is breaking from after testing a major retracement zone at $92.41 to $95.88. Based on the short-term range of $77.70 to $93.25, traders should look for a possible retracement to $85.48 to $83.64 before looking to enter on the long-side. Since the main trend is up, traders may decide to turn the market higher at any time if problems flare up in the Middle East, but for the most part, investors will be looking for a test of a value zone before considering the long side. 

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About:FX Empire Analyst - James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.

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