Currency Trading: DailyFX

The latest rally has been well capped ahead of key short-term resistance by 1.2925, with the market now looking like it is poised for a bearish resumption back towards 1.2585 over the coming sessions.

Is it really shocking news that European officials understated the potential risk that its regional banks face? It would seem so given the strong risk aversion move and robust dollar bid (especially against the euro) that developed Tuesday. However, that wouldn’t hit at the root of the issue. This particular Wall Street Journal article wasn’t the catalyst for the general market like many analysts have idly claimed. Instead, this was a general concern surrounding the region that had started to build momentum yesterday.

The US Dollar is likely to continue higher after rebounding from key support on safety demand amid renewed risk aversion as technical positioning points to bearish reversal in global stock performance.

After an extended holiday weekend for the US markets, speculators would return to an active market with a very clear vote on investor confidence – uncertainty and fear. For the benchmark risk and safe haven commodities, the impact was met with nuance.

The EUR/USD sunk nearly 200 pips overnight as concerns that European banks are at risk as they hold more potential toxic sovereign debt than reported in the recently performed stress tests. As Europeans rebel against austerity measures aimed at bringing unruly budget deficits under control, the path toward fiscal soundness has become thorny, increasing the potential for defaults.

Student's Question:If we are looking at the chart, surely it's nothing too difficult to identify whether the market is in range or trending condition since the chart is representing historical prices. But is there any way to know whether the market is going to be trending or range bound ahead of time?

Market participants speculate the Bank of Canada to deliver another 25bp rate this month as the economic recovery gathers pace, and hawkish comments following the interest rate decision are likely to spark a bullish reaction in the loonie as investors weigh the prospects for future policy.

The COT index indicates that traders are extremely pessimistic the Canadian dollar. Since this reading follows sideways trading, the CAD may soon break down.