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U.S. Dollar Trading (USD) most currencies were very subdued as traders wait for tonight’s main event of the week out in the ECB Rate meeting. Also in the European session we are going to see the EU leaders meet to discuss new ways of integrating the Eurozone more closely and this could spark a major rally or crash depending on how things evolve. Rating agencies are putting pressure on the EU to act with negative rating watch on most of Europe. In US stocks, DJIA +46 points closing at 12196, S&P +2 points closing at 1260 and NASDAQ -0 points closing at 2649. Looking ahead, Weekly Jobless Claims forecast at 395k vs. 402k previously.

The Euro (EUR) the Euro rallied to 1.3450 at the start of Europe on optimism a major announcement would be announced in the coming days to support the Eurozone from both the ECB and EU leaders. The Rally was sold however with some conflicting headlines from Germany tempering expectations. Rumors continue to swirl on the size of new announcements and this is causing some sharp buying and selling throughout the trading day. Looking ahead, ECB Meeting forecast to cut rates to 1% vs. 1.25% previously and ECB President Draghi speaks. Also EU leading meet to discuss ways forward in the debt crisis.

The Japanese Yen (JPY) USD/JPY has been sidelined with a slight downside bias but still in a 20 pip range overnight. The market is focused on EUR/JPY for headlines form Europe and AUD/JPY for tracking the stock market movements. The outlook for USD/JPY will depend on next week’s FOMC meeting in which we are expected to see more details on the US monetary policy outlook.

The Sterling (GBP) rallied in the US session as EUR/GBP selling supported. The BOE also meet tonight but this is likely to be a nonevent holding at 0.5% and no new announcements are expected. Traders will be watching the ECB meeting closely and will likely follow the lead of the EUR/USD for direction today. Looking ahead, BOE Rate Meeting 0.5% hold and QE at 275bn unchanged.

The Australian Dollar (AUD) rallied on solid GDP numbers for the Q3 coming at 1.0% Q/Q which is one of the highest in the developed world supported by strong mining exports to China. The AUD/USD tested 1.0300 in the US session but found solid resistance and went very quiet ahead of tonight’s ECB risk event. Looking ahead, November Unemployment Change forecast at 10.6k vs. 10k previously. Unemployment rate is forecast to remain at 5.2%.

Oil & Gold (XAU) Gold strengthened with some investors speculating the ECB will announce major new bond buying operations which would be in effect printing money and increase the demand for alternative investments such as gold. Oil consolidated recent gains testing $100 but held above the key big figure support.

Pairs to watch

EUR/USD ECB to announce new measures?

XAU/USD To rally on central bank moves?

TECHNICAL COMMENTARY

Currency

Sup 2

Sup 1

Spot

Res 1

Res 2

EUR/USD

1.3212

1.3363

1.3405

1.3548

1.3730

USD/JPY

77.01

77.49

77.70

78.29

78.42

GBP/USD

1.5459

1.5526

1.5700

1.5726

1.5883

AUD/USD

1.0000

1.0151

1.0285

1.0350

1.0447

XAU/USD

1683.00

1701

1740

1755

1767

OIL/USD

99.00

100.00

100.40

102.00

105.00

Euro – 1.3405

Initial support at 1.3363 (Dec 2 low) followed by 1.3212 (Nov 25 low). Initial resistance is now located at 1.3548 (Dec 2 high) followed by 1.3730 (50% retrace of 1.4247-1.3212)

Yen – 77.70

Initial support is located at 77.49 (Dec 1 low) followed by 77.01 (Nov 24low). Initial resistance is now at 78.29 (Nov 29 high) followed by 78.42 (Nov 2 high).

Pound – 1.5700

Initial support at 1.5526 (Nov 30 low) followed by 1.5459 (Nov 28 low). Initial resistance is now at 1.5726 (Dec 2 high) followed by 1.5883 (61.8% retrace of 1.6167-1.5423).

Australian Dollar – 1.0285

Initial support at 1.0151 (Dec 1 high) followed by the 1.0000 (Round Number). Initial resistance is now at 1.0350 (Nov 14 high) followed by 1.0447 (Nov 3 high).

Gold – 1741

Initial support at 1701 (Nov 30 high) followed by 1728 (61.8% retrace of 1681.73-1802.93). Initial resistance is now at 1755 (Dec 5 high) followed by 1816 (Sep 21 high).

Oil – 100.40

Initial support at 100.00 (Intraday Support) followed by 99.00 (Intraday Support). Initial resistance is now at 102.00 (Intraday resistance) followed by 105.00 (Intraday Resistance).

Written by Anthony Darvall