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U.S. Dollar Trading (USD) was under pressure yesterday as traders reacted to a surge in the Euro after very positive Spanish bond auctions which led to a dramatic tightening of the peripheral European 10yr bond yields. Weak US Weekly jobless Claims put a dampener on the positive risk appetite and reversed most of the stock gains in the US session. Weekly Jobless Claims jumped to 399k vs. 375 k forecast. In US stocks, DJIA +21 points closing at 12471, S&P +3 points closing at 1295 and NASDAQ +13 points closing at 2724. Looking ahead, November Trade Balance forecast at -45bn vs. -43.5bn previously. January UoM Consumer Sentiment forecast at 71.5 vs. 69.9 previously.

The Euro (EUR) the ECB meeting saw interest rates held at 1.0% as expected but President Draghi was quite optimistic in his press conference noting there are tentative signs the European debt crisis is stabilizing. This combined with the positive Spanish auctions saw the Euro gain against every currency and shorts squeezed around the market. The positioning on the Euro is so short that some analysts are suggesting for a 300-400 pip relief rally in possible. Looking ahead, November Trade Balance forecast at -1.5bn vs. 1.1bn previously.

The Japanese Yen (JPY) the USD/JPY fell down to Y76.70 as the USD weakened broadly in the European session but the market was supported by strong buying in the EUR/JPY which is still well below the Y100 level and the target for any short covering rally. The AUD/JPY is ranging under the Y80 and a break above could prompt more gains in the former carry trade favorite. GBP/JPY is still under pressure and struggling to gain traction.

The Sterling (GBP) was muted and left behind in the risk on rally yesterday with the EUR/GBP short covering keeping the GBP/USD at the 1.5300 level. The BOE held at 0.5% and kept the Asset purchase program at 275BN as widely expected. The market is cautious to get long in the GBP/USD when the Euro and AUD is providing a much safer short term option in recent trading sessions. Looking ahead, December PPI forecast at 0% vs. 0.2% previously m/m.

Australian Dollar (AUD) broke above 1.0330 resistance as the Aussie reacted to European stocks and the move higher in the Euro. EUR/AUD did cover some degree from 1.2300 to 1.2450 but the market once again sold into this bounce and the EUR/AUD finished under 1.2400. The outlook for the AUD/USD is linked to the stock market and so far this year we are performing well and the AUD/USD is close to entering a upwards trend.

Oil & Gold (XAU) Gold Broke above the $1650 level but closed back below as the market took profit from the recent rally. A weak USD is supporting but falling European bond yields should also dampen demand for Gold which is seen as a safe haven and alternative investment. Oil’s support was broken overnight with a sharp fall below $100 a barrel with the Iran fears subsiding overtime and speculative longs booking profit.

Pairs to watch

EUR/USD to move back to 1.3000?

OIL/USD more selling now below $100?

TECHNICAL COMMENTARY

Currency

Sup 2

Sup 1

Spot

Res 1

Res 2

EUR/USD

1.2588

1.2644

1.2820

1.2947

1.3080

USD/JPY

76.00

76.58

76.80

77.74

78.98

GBP/USD

1.5125

1.5272

1.5340

1.5526

1.5629

AUD/USD

1.0044

1.0229

1.0335

1.0387

1.0567

XAU/USD

1605.00

1630

1648

1662

1677

OIL/USD

97.50

99.00

99.30

100.00

101.00

Euro – 1.2820

Initial support at 1.2644 (Sept 10 2010 low) followed by 1.2588 (Aug 24 2010 low). Initial resistance is now located at 1.22947 (Jan 5 high) followed by 1.3080 (Dec 28 high)

Yen – 76.80

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 – 1.5340

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 – 1.0335

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 – 1648

Initial support at 1630 (Jan 11 low) followed by 1605 (Jan 9 low). Initial resistance is now at 1662 (50% retrace of 1802.93-1522.65) followed by 1677 (Dec 13 high).

Oil – 99.30

Initial support at 99.00 (Intraday Support) followed by 97.50 (Intraday Support). Initial resistance is now at 100.00 (Intraday resistance) followed by 101.00 (Intraday Resistance).

Written by Anthony Darvall