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U.S. Dollar Trading (USD) markets went south for most of the day with all three rating agencies unimpressed by the EU summit. The Euro led most markets lower with traders expecting downgrades in the coming days. With little economic data this week the stocks used the EU debt issue to push stocks lower. In US stocks, DJIA -162 points closing at 12021, S&P -18 points closing at 1236 and NASDAQ -34 points closing at 2612. Looking ahead, November Retail Sales forecast at 0.6% m/m. Also, FOMC Rate announcement forecast at 0.25% vs. 0.25% previously.
The Euro (EUR) the EUR/USD broke down to multi month lows on the back of the rating agencies dissatisfaction with the EU summit and the negative rating watch remains for most of Europe. Yield on Italian bonds crept higher towards the 7% level on the 10 year and is threatening to spiral out of control in coming days. The EUR/USD could test 1.3000 in coming days if the crisis continues as it has broken previous support at 1.3300. Looking ahead, December German ZEW forecast -56 vs. -55.
The Japanese Yen (JPY) the USD/JPY moved higher as the USD outpaced the strength of the Yen but the moves were very mild as the major edged up to test Y78. EUR/JPY tested new lows under Y103 and could test the major Y100 level in coming days if the situation in Europe is allowed to fester. Most crosses fell on risk aversion.
The Sterling (GBP) was able to hold up better than most with the EUR/GBP cross breaking below the key 0.8500 level. The GBP/USD held at 1.5550 and bounced back to close at 1.5600. The outlook is linked with the Euro and if the crisis deepens the GBP/USD will follow the single currency lower. Looking ahead, November RPI forecast at 0.2% vs. 0.0% previously and CPI is seen at 4.8% vs. 5.0% y/y.
The Australian Dollar (AUD) the AUD/USD broke below 1.0100 as the selling intensified going into Europe but was able to find support at 1.0050 as US stocks found a bottom overnight. The parity level is very close and the Aussie could be trading under the key level in coming sessions as the risk appetite of traders continues to slump. UPDATE November Business Confidence unchanged at 2.
Oil & Gold (XAU) Gold fell heavily breaking below $1700 and falling $50 on the day as longs bailed out of the precious metal. Crude Oil fell in sympathy with Gold and stocks only finding tentative support under the $98 a barrel level.
Pairs to watch
EUR/USD to test 1.3000?
USD/JPY to break the Y78 topside resistance?
Euro – 1.3185
Initial support at 1.3259 (Nov 30 low) followed by 1.3212 (Nov 25 low). Initial resistance is now located at 1.3386 (Dec 12 high) followed by 1.3487 (Dec 5 high)
Yen – 77.90
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 – 1.5600
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 – 1.0060
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 – 1655
Initial support at 1635 (Oct 24 high) followed by 1603 (Oct 20 low). Initial resistance is now at 1724 (Dec 9 high) followed by 1755 (Dec 5 high).
Oil – 97.80
Initial support at 97.00 (Intraday Support) followed by 95.00 (Intraday Support). Initial resistance is now at 98.00 (Intraday resistance) followed by 100.00 (Intraday Resistance).
Written by Anthony Darvall