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U.S. Dollar Trading (USD) risk was taken off the table on Tuesday with the EUR/USD falling to 16 month lows on rumors that France was going to receive a downgrade and comments from Fitch that the ECB must purchase troubled European bonds to avoid a ‘cataclysm’. In US stocks, DJIA -13 points closing at 12449, S&P +1 points closing at 1292 and NASDAQ +8 points closing at 2710. Looking ahead, December Retail Sales forecast at 0.3% vs. 0.2% previously. Also released, Weekly Jobless Claims forecast at 375k vs. 372k previously.
The Euro (EUR) the unnecessary use of the word cataclysm from rating agency Fitch when warning the ECB to buy more Bonds spooked the market sending the EUR/USD to fresh lows under 1.2700. The market then stabilized and managed a lackluster bounce in the US session. The ECB meeting tonight is very important and new measure could spark a short covering rally. Looking ahead, ECB Rate meeting forecast to hold at 1.0% vs. 1.0% previously. Attention on ECB President Draghi press conference afterwards.
The Japanese Yen (JPY) was well supported on the USD/JPY which tested the Y77 level on the back on the EUR/USD selling Dollar strength. The EUR/JPY however tested recent lows near Y77.50. The outlook for most crosses is in the hands of the Eurozone debt crisis with easing of concerns potentially leading to a Yen sell off. NZD/JPY and AUD/JPY are both holding up well.
The Sterling (GBP) the GBP/USD was the weakest currency in the market overnight with weak November Trade Balance data the catalyst for a move towards 1.5300. The EUR/GBP took advantage of this to move up to 0.8300 in a rare rally for the cross which has been in a downtrend for the past two months. The BOE meeting tonight is expected to be a non-event. Looking ahead, BOE forecast to hold at 0.5%. If no change then there is not statement or press conference.
Australian Dollar (AUD) the EUR/USD and GBP/USD sell off in Europe sent the Aussie to day lows but AUD/JPY buying and general support for the high yielder recently allowed the pair to finish unchanged. The mild risk aversion is not proving as dangerous for the AUD/USD as in previous months and we would need to see sharp selling in the stock market to shake the longs out of the current market. EUR/AUD is now being watched by many analysts with the oversold signals hard to ignore.
Oil & Gold (XAU) Gold is consolidating the recent move high in a new $1630-50 range. Oil fell back to $101 support but found good buying under the level.
Pairs to watch
EUR/USD ECB to save the day?
EUR/AUD can we move lower for 13th day in a row?
Euro – 1.2710
Initial support at 1.2644 (Sept 10 2010 low) followed by 1.2588 (Aug 24 2010 low). Initial resistance is now located at 1.2813 (Jan 6 high) followed by 1.3080 (Dec 28 high)
Yen – 76.90
Initial support is located at 76.58 (Nov 18 low) followed by 76.00 (Big Figure). Initial resistance is now at 77.74 (Dec 30 high) followed by 78.98 (Nov 1 high).
Pound – 1.5320
Initial support at 1.5272 (Aug 6 low) followed by 1.5125 (Jul 21 2010 low). Initial resistance is now at 1.5526 (Jan 6 high) followed by 1.5629 (Jan 5 high).
Australian Dollar – 1.0305
Initial support at 1.0229 (Jan 10 low) followed by the 1.0044 (Dec 29 low). Initial resistance is now at 1.0387 (Jan 3 low) followed by 1.0567 (Mar 3 high).
Gold – 1643
Initial support at 1605 (Jan 9 low) followed by 1561 (Jan 2 low). Initial resistance is now at 1662 (50% retrace of 1802.93-1522.65) followed by 1677 (Dec 13 high).
Oil – 101.10
Initial support at 101.00 (Intraday Support) followed by 100.00 (Intraday Support). Initial resistance is now at 103.50 (Intraday resistance) followed by 105.00 (Intraday Resistance).
Written by Anthony Darvall