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U.S. Dollar Trading (USD) initial reactions to the EU Summit in Asia were negative as disunity emerged between the UK and Europe. The European session saw a dramatic reversal of the sentiment and we managed a rally into the close. US Consumer Confidence rose sharply in December to 67.7 vs. 64.1 previously and this added to the positive mood. In US stocks, DJIA +186 points closing at 12184, S&P +20 points closing at 1255 and NASDAQ +50 points closing at 2646.
The Euro (EUR) the initial reaction to the announcement that only the Euro currency 17 would be signing up to a new treaty after UK vetoed caused slight panic in the market but the Europeans reaction was more subdued and they seemed confident the new EU fiscal compact would bring the EU closer together. German also threw cold water on calls for Eurobonds and on ESM getting a banking license and this capped optimism. Bond yields in Italy and Spain initially spiked higher but closed lower. Looking ahead, November German WPI forecast at 0.0% vs. -1% previously.
The Japanese Yen (JPY) the USD/JPY was unmoved remaining within a 25 pip range while all the action was on the Yen crosses. AUD/JPY and EUR/JPY led the market down in late Asian trade as it seemed the EU summit could unravel but then the market reversed sharply with a second look at progress made encouraging European investors. The USD/JPY will be closely watching the FOMC later this week from the US with the Fed expected to be clearer in its monetary policy communications.
The Sterling (GBP) GBP/USD struggled on Friday with the negative fallout from the EU summit in which the UK PM refused to sign up to new reforms. Traders are concerned this could lead to the UK being left out of future negotiations and possible distancing itself from the Eurozone. GBP/USD found support under 1.5600 and is stable waiting for more EU fallout.
The Australian Dollar (AUD) the AUD/USD more volatile than most falling heavily in Asia before reversing and rallying up to 1.0200. Chinese data on Friday was supportive but the EU summit concerns dominated the price action. The chances of more falls will depend on Italian bond yields and stock markets. UPDATE October Trade Balance at 1595 vs. 1900 forecast.
Oil & Gold (XAU) Gold was cautious in a tight trading range supported by the demand for alternative investments but hurt but risk off trade. Oil was able to recover slightly from Thursday’s sell off back above $99 and looking to retest $100.
Pairs to watch
EUR/USD Italian Bond Yields to resume march higher?
GBP/USD to be hurt from EU summit fallout?
Euro – 1.3350
Initial support at 1.3259 (Nov 30 low) followed by 1.3212 (Nov 25 low). Initial resistance is now located at 1.3487 (Dec 5 high) followed by 1.3548 (Dec 2 high)
Yen – 77.60
Initial support is located at 77.01 (Nov 24 low) followed by 76.84 (Nov 22 low). Initial resistance is now at 77.86 (Dec 6 high) followed by 78.42 (Nov 2 high).
Pound – 1.5640
Initial support at 1.5595 (Dec 7 low) followed by 1.5459 (Nov 28 low). Initial resistance is now at 1.5780 (Nov 30 high) followed by 1.5883 (61.8% retrace of 1.6167-1.5423).
Australian Dollar – 1.0180
Initial support at 1.0000 (Parity) followed by the 0.9863 (Nov 29 low). Initial resistance is now at 1.0233 (Dec 7 low) followed by 1.0447 (Nov 3 high).
Gold – 1710
Initial support at 1701 (Nov 30 high) followed by 1728 (61.8% retrace of 1681.73-1802.93). Initial resistance is now at 1720 (Dec 7 high) followed by 1755 (Dec 5 high).
Oil – 99.30
Initial support at 98.00 (Intraday Support) followed by 97.00 (Intraday Support). Initial resistance is now at 100.00 (Intraday resistance) followed by 101.00 (Intraday Resistance).
Written by Anthony Darvall