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U.S. Dollar Trading (USD) banks led global stock markets higher as the European debt crisis continued to show signs of easing after solid Auctions in 10yr Spanish and French bonds overnight. US data also underpinned the move higher with the weekly Jobless claims falling 50k to 352k in a widely noticed improvement in the US Job market. In US stocks, DJIA +45 points closing at 12624, S&P +6 points closing at 1314 and NASDAQ +18 points closing at 2788. Looking ahead, December Existing Home Sales forecast at 4.65mn vs. 4.42mn previously.

The Euro (EUR) the Euro rallied sharply for a second day heading back towards 1.3000 as fears the debt crisis spreading begin to ease and shorts in the market take profit. Most crosses led by the EUR/JPY had very strong gains and helped sustain the majors rally. The big risk event ahead is the Greece debt deal with a conclusion expected in coming days. Failure to reach an agreement would see the recent gains quickly given back. Looking ahead, December PPI forecast at 0.1% m/m.

The Japanese Yen (JPY) USD/JPY popped back above Y77 as the EUR/JPY tested Y100 in a sharp rally in the US session. AUD/JPY is also back above the key Y80 level and more gains are on the table if stocks continue to push into fresh year highs. There is still interest from Japanese companies to hedge EUR/JPY on rallies with concern the important cross will continue to trend lower this year.

The Sterling (GBP) did well as sentiment improved gaining towards 1.5500 on the major and not losing much ground against the Euro. The GBP/JPY has also been underperforming lately and sharp buying in the cross along with GBP/AUD short covering helped underpin the Cable move higher. A positive Greece deal may see the relief rally continue. Looking ahead, December Retail Sales forecast at 0.6% vs. -0.4% previously m/m.

Australian Dollar (AUD) the AUD/USD underperformed in the risk rally as December Unemployment shocked at -29k vs. +10k forecast. The EUR/AUD leapt at the opportunity to move 200 pips higher off all-time lows. The market has been selling the EUR/AUD for months and the unwind could be brutal in coming days. Looking ahead, Chinese HSBC PMI previously at 48.7.

Oil & Gold (XAU) Gold rallied to $1670 before easing back $1650. Oil tested $102 before also easing of profit taking back to the $100 level.

Pairs to watch

EUR/JPY breaking above the Y100?

EUR/CHF are the SNB going to protect 1.2000?

TECHNICAL COMMENTARY

Currency

Sup 2

Sup 1

Spot

Res 1

Res 2

EUR/USD

1.2734

1.2839

1.2960

1.3077

1.3197

USD/JPY

76.00

76.58

77.10

77.74

78.98

GBP/USD

1.5125

1.5311

1.5490

1.5501

1.5526

AUD/USD

1.0044

1.0359

1.0420

1.0450

1.0567

XAU/USD

1605.00

1641

1656

1667

1677

OIL/USD

99.00

100.00

100.60

101.50

103.50

Euro – 1.2960

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 – 76.55

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 – 1.5490

Initial support at 1.5311 (Jan 17 low) followed by 1.5125 (Jul 21 2010 low). Initial resistance is now at 1.5501 (Jan 10 high) followed by 1.5526 (Jan 6 high).

Australian Dollar – 1.0420

Initial support at 1.0359 (Jan 18 low) followed by the 1.0044 (Dec 29 low). Initial resistance is now at 1.0450 (Jan 17 low) followed by 1.0567 (Mar 3 high).

Gold – 1656

Initial support at 1641 (Jan 17 low) followed by 1625 (Jan 13 low). Initial resistance is now at 1667 (Jan 17 high) followed by 1677 (Dec 13 high).

Oil – 100.60

Initial support at 100.00 (Intraday Support) followed by 99.00 (Intraday Support). Initial resistance is now at 101.50 (Intraday resistance) followed by 103.50 (Intraday Resistance).

Written by Anthony Darvall