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U.S. Dollar Trading (USD) volatility returned to the market overnight with the EU finance ministers rejecting the Greek bondholders 4.0% coupon demand on a debt swap. Stocks dropped in Europe and in the US and helped the Dollar gain on safe haven demand. The dip was shallow though and most markets pared losses into the end of the session. In US stocks, DJIA -33 points closing at 12675, S&P -1 points closing at 1314 and NASDAQ +2 points closing at 2786. Looking ahead, FOMC Interest Rate meeting forecast to hold at 0.25%. Focus on the FOMC Statement and Press Conference afterwards.

The Euro (EUR) concerns over new threats to the Greek debt deal was countered by stronger than expected economic data. January PMI surveys showed improvement with Manufacturing improving to 48.7 vs. 46.9 previously and Services at PMI forecast at 50.5 vs. 48.8. Also helping sentiment was solid debt Auctions from Spain. Looking ahead, January German IFO Business Climate forecast at 107.5 vs. 107.2 previously.

The Japanese Yen (JPY) was the big mover in the market after the Yen sold off aggressively across the board when the BOJ downgraded the growth outlooks for Japan and deteriorating Trade balance. December Trade Balance at -205bn vs. -139bn forecast. EUR/JPY broke above Y101 to multi-week highs.

The Sterling (GBP) Dipped with the EUR/USD going into the European session but was well supported and tested 1.5600 at the end of the US session. BOE Governor King talked up the prospect of more QE at the next BOE meeting to help the recovery. Looking ahead, Q4 GDP forecast at -0.1% vs. 0.6% previously. January MPC Vote forecast at 0-9-0 for a consensus hold vote.

Australian Dollar (AUD) the Aussie was a noted underperformer with the recent rally on most pairs including the USD coming under profit taking pressure. The notable exception was the AUD/JPY which continued to track higher and closed above Y81. UPDATE Q4 CPI at 3.1% vs. 3.5% previously

Oil & Gold (XAU) Gold fell on USD strength back below $1670 but found support quickly at $1665. Oil traded lower but support was found under $98.50

Pairs to watch

EUR/USD the rally to continue?

USD/JPY Broken higher to test Y78?

TECHNICAL COMMENTARY

Currency

Sup 2

Sup 1

Spot

Res 1

Res 2

EUR/USD

1.2734

1.2839

1.3020

1.3077

1.3197

USD/JPY

76.00

76.58

77.95

78.04

78.98

GBP/USD

1.5416

1.5451

1.5615

1.5629

1.5692

AUD/USD

1.0044

1.0359

1.0520

1.0567

1.0753

XAU/USD

1605.00

1641

1665

1681

1695

OIL/USD

97.00

98.50

99.15

100.00

101.00

Euro – 1.3020

Initial support at 1.2839 (Jan 19 low) followed by 1.2734 (Jan 18 low). Initial resistance is now located at 1.3077 (Jan 3 high) followed by 1.3197 (Dec 21 high)

Yen – 77.95

Initial support is located at 76.58 (Nov 18 low) followed by 76.00 (Big Figure). Initial resistance is now at 78.04 (Dec 28 high) followed by 78.98 (Nov 1 high).

Pound – 1.5615

Initial support at 1.5451 (Jan 20 low) followed by 1.5416 (Jan 19). Initial resistance is now at 1.5629 (Jan 5 high) followed by 1.5692 (Dec 28 high).

Australian Dollar – 1.0510

Initial support at 1.0359 (Jan 18 low) followed by the 1.0044 (Dec 29 low). Initial resistance is now at 1.0567 (Nov 1 high) followed by 1.0753 (Oct 27 high).

Gold – 1665

Initial support at 1641 (Jan 17 low) followed by 1625 (Jan 13 low). Initial resistance is now at 1681 (Jan 23 high) followed by 1695 (61.8% retrace of 1802.93-1522.65).

Oil – 99.15

Initial support at 98.50 (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