U.S. Dollar Trading (USD) the recovery rally accelerated last night with investors seemingly convinced about the Sarkozy/Merkal announcement to do whatever it takes to save the EU with a comprehensive package to be announced before November. Banking Stocks led US stocks is a +3% rally which dented demand for the USD and encouraged commodities/risk assets to soar. In US stocks, DJIA +330 points closing at 11433, S&P +39 points closing at 1194 and NASDAQ +86 points closing at 2566.

The Euro (EUR) the EUR/USD once again was the main leader in the market as sellers exited on the raft of supporting comments coming from European officials. The sentiment has changed drastically in the last 4 days and we are now looking for resistance after breaking 1.3500 and surging to 1.3700 overnight. Looking ahead, ECB President Trichet Speaks.

The Japanese Yen (JPY) broad USD weakness sent USD/JPY to the bottom of the Y76.50 -Y77 range but most currencies gained against the safe haven Yen with EUR/JPY in particular showing strength. EUR/JPY hit resistance at Y105 but is still well supported on dips.

The Sterling (GBP) was caught up in the frenzy stock market led rally gaining from 1.5500 to test 1.5700 in the US session but underperformed relative to the Euro and this allowed the EUR/GBP to move back above 0.8700. The GBP/JPY has reclaimed the key Y120 level and could signal further gains.

The Australian Dollar (AUD) the 5th day of rally has seen a staggering recovery for the risk sensitive Australian dollar. AUD/USD tested parity overnight trading above the key 1.0000 level before easing back into the close. AUD/JPY is one way action with very shallow pullbacks as the advance continues. The 5 day rally is nearing overbought levels as only last Tuesday the pair was trading at 0.9400.

Oil & Gold (XAU) Gold took advantage of the USD weakness to push to the recent resistance at $1678. The double bottom at $1600 has created a strong buying signal. Crude broke above the $85 resistance and traded up to $86 inline with the stock market move.

Pairs to watch

AUD/USD Overbought time for consolidation?

Oil/USD back to $90 a barrel?

TECHNICAL COMMENTARY

Currency

Sup 2

Sup 1

Spot

Res 1

Res 2

EUR/USD

1.3242

1.3336

1.3650

1.3690

1.3797

USD/JPY

75.95

76.11

76.65

77.28

77.86

GBP/USD

1.5423

1.5525

1.5665

1.5716

1.5781

AUD/USD

0.9622

0.9728

0.9990

1.0080

1.0239

XAU/USD

1596.00

1620

1677

1704

1726

OIL/USD

83.50



85.00

85.95

88.00

90.00



Euro - 1.3650

Initial support at 1.3346 (Oct 10 low) followed by 1.3242 (Oct 6 low). Initial resistance is now located at 1.3690 (Sept 28 high) followed by 1.3797 (Sept 21 high)



Yen - 76.65

Initial support is located at 76.11 (Sep 22 low) followed by 75.95 (Aug 19 low). Initial resistance is now at 77.28 (Sep 15 high) followed by 77.86 (Sep 9 high).

Pound - 1.5665

Initial support at 1.5525 (Oct 10 low) followed by 1.5423 (Oct 7 low). Initial resistance is now at 1.5716 (Sept 29 high) followed by 1.5781 (Jul 12 low).



Australian Dollar - 0.9990

Initial support at 0.9728 (Oct 7 low) followed by the 0.9622 (Oct 6 low). Initial resistance is now at 1.0080 (Sep 22 high) followed by 1.0239 (61.8% retrace of 1.0765-0.9388).

Gold - 1677

Initial support at 1620 (Oct 10 low) followed by 1596 (Oct 4 low). Initial resistance is now at 1704 (Aug 25 high) followed by 1726 (50% retrace of 1921.15-1532.72).



Oil - 85.95

Initial support at 85.00 (Intraday Support) followed by 83.50 (Intraday Support). Initial resistance is now at  88.00 (Intraday resistance) followed by 90.00 (Intraday Resistance).





Written by Anthony Darvall