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U.S. Dollar Trading (USD) sentiment improved and US stocks moved to fresh 5 month highs after rating agencies affirmed Frances AAA rating which was a relief to cautious sidelined investors. With little US economic data traders instead looked to company earnings which so far have been better than expected. In US stocks, DJIA +69 points closing at 12462, S&P +11 points closing at 1292 and NASDAQ +25 points closing at 2702. Looking ahead, Crude Oil inventories forecast at 0.9m vs. 2.2m previously. Also FED Beige Book released.

The Euro (EUR) the markets took heart with Fitch comments that Germany’s rating was safe at AAA and France is unlikely to be downgraded in 2012 and only Italy is currently at threat of imminent Downgrade. The EUR/USD and EUR/JPY both enjoy a relief rally for the second day but gains were limited and the major found heavy resistance above 1.2800. The downside is still likely to be tested again before we can talk of the downtrend ending. Looking ahead, Final Q3 GDP forecast at 0.2 vs. 0.2% q/q.

The Japanese Yen (JPY) the USD/JPY contained to Monday’s range with more action seen on Crosses with AUD/JPY and EUR/JPY moving higher with stocks. EUR/JPY is being sold on rallies however and in Asia on Wednesday we are once again seeing selling from Japanese investors. AUD/JPY moved to Y79.50 and is in striking distance of Y80 going forward.

The Sterling (GBP) the GBP/USD tested 1.5500 in Europe but failed to break the big figure and consolidated below for the rest of the day. The market has traded in this range for many days now and is primed to break out in fresh direction as the trading year heats up. Strong stock markets suggest a move to the 1.5700 whilst a Greece debt deal failure opens up 1.5200 and 1.5000.

Australian Dollar (AUD) the AUD/USD once again outperformed the rest of the risk currencies with the Asian commodity currency seen insulated from the Eurozone debt crisis and fortunes instead linked to the China story. Some weaker than expected Chinese import data yesterday has prompted some speculation the China may adopt more monetary easing or stimulus measures.

Oil & Gold (XAU) Gold moved higher breaking above $1630 taking advantage of the weaker USD. Oil was volatile with the market dipping back to $101 in Europe before retesting recent highs above $103 in the US session.

Pairs to watch

EUR/USD Will the ECB help or hurt at tomorrow’s meeting

EUR/CHF Many Traders waiting for 1.2000 SNB floor test

TECHNICAL COMMENTARY

Currency

Sup 2

Sup 1

Spot

Res 1

Res 2

EUR/USD

1.2588

1.2644

1.2750

1.2813

1.3080

USD/JPY

76.00

76.58

76.85

77.74

78.98

GBP/USD

1.5272

1.5402

1.5465

1.5526

1.5629

AUD/USD

1.0044

1.0127

1.0285

1.0387

1.0567

XAU/USD

1561.00

1605

1636

1641

1662

OIL/USD

100.00

101.00

101.90

103.50

105.00

Euro – 1.2750

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 – 76.85

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 – 1.5465

Initial support at 1.5402 (Dec 30 low) followed by 1.5272 (Oct 6 low). Initial resistance is now at 1.5526 (Jan 6 high) followed by 1.5629 (Jan 5 high).

Australian Dollar – 1.0285

Initial support at 1.0127 (Dec 30 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 – 1636

Initial support at 1605 (Jan 9 low) followed by 1561 (Jan 2 low). Initial resistance is now at 1641 (Dec 21 low) followed by 1662 (50% retrace of 1802.93-1522.65).

Oil – 101.90

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