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S&P Negative Rating Watch on Europe Hurts
U.S. Dollar Trading (USD) the USD was on the back foot for most of the day as the market responded positively to the meeting between Merkal and Sarkozy in which they outlined a new treaty to bring European countries under closer fiscal ties. Stocks pared back gains however as S&P put European countries on negative rating watch. In US stocks, DJIA +78 points closing at 12097, S&P +12 points closing at 1257 and NASDAQ +28 points closing at 2655. Looking ahead, IBD Economic Optimism for December previously at 40.6.
The Euro (EUR) The Euro traded towards 1.3500 as the markets took the new unity between Germany and France as a positive sign for this week’s EU summit where they will push for treaty changes that may open up new measures to end the Debt crisis. Most yields dropped with Italy and Spain in particularly pulling back and this helped sentiment. The S&P downgrade spooked the rally and saw the EUR/USD fall back to 1.3400 with Germany on negative watch the major surprise. Looking ahead, Revised Q3 GDP forecast unchanged at 0.2% and German October Industrial Orders forecast at 0.8% vs. -4.3% m/m previously.
The Japanese Yen (JPY) USD/JPY pulled back from the Y78 level as USD weakness trumped the Yen weakness in the positive risk on environment. Support was quickly found however near Y76.60 and most Yen crosses rallied with stocks. These gains pared back into the close on the S&P rating warning but the sentiment and trend is still higher.
The Sterling (GBP) did well rallying with the Euro early in the day and then not falling aggressively with the S&P news as the EUR/GBP fell instead. EUR/GBP is looking to test lower towards the key 0.8500 support as the debt crisis hurts the Euro more than its neighbor in the UK. Looking ahead, November Halifax HPI forecast at 0.0% vs. 1.2% m/m.
The Australian Dollar (AUD) the AUD/USD traded between 1.0200 and 1.0300 but ended at 1.0250 as the market was steady ahead of the RBA meeting today. The outlook is mixed with most looking for a cut but a very real chance the RBA hold as recent data has not been negative. The central bank may look to the recent slowing Chinese economy to justify the rate cut however as well as the ongoing EU uncertainty. Looking ahead, RBA Rate announcement forecast at 4.25% vs. 4.5%.
Oil & Gold (XAU) Gold pulled back towards $1720 as the precious metal was sold on the positive Eurozone news. The S&P warning sent gold even lower as USD gained across the board. Oil fell after failing near $102 but found support above the key $100 level. Ongoing middle eastern tensions are continuing to support.
Pairs to watch
EUR/USD S&P warning to hurt?
USD/JPY still a buy on dip?
Euro – 1.3395
Initial support at 1.3363 (Dec 2 low) followed by 1.3212 (Nov 25 low). Initial resistance is now located at 1.3548 (Dec 2 high) followed by 1.3730 (50% retrace of 1.4247-1.3212)
Yen – 77.80
Initial support is located at 77.49 (Dec 1 low) followed by 77.01 (Nov 24low). Initial resistance is now at 78.29 (Nov 29 high) followed by 78.42 (Nov 2 high).
Pound – 1.5640
Initial support at 1.5526 (Nov 30 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 – 1.0260
Initial support at 1.0151 (Dec 1 high) followed by the 1.0000 (Round Number). Initial resistance is now at 1.0350 (Nov 14 high) followed by 1.0447 (Nov 3 high).
Gold – 1720
Initial support at 1701 (Nov 30 high) followed by 1728 (61.8% retrace of 1681.73-1802.93). Initial resistance is now at 1755 (Dec 5 high) followed by 1816 (Sep 21 high).
Oil – 100.60
Initial support at 99.00 (Intraday Support) followed by 100.00 (Intraday Support). Initial resistance is now at 102.00 (Intraday resistance) followed by 105.00 (Intraday Resistance).
Written by Anthony Darvall