Currency Daily Report: January 31, 2012

U.S. personal income increased by slightly more than expected in the month of December, according to figures released Monday by the Commerce Department, although consumer spending came in nearly unchanged. According to the Commerce Department, personal income increased by $61.3 billion in December, reflecting a 0.5 percent increase from November levels. The U.S. Treasury Department lowered its borrowing estimate for the current quarter by 18 percent to $444 billion, reflecting higher receipts and lower spending. The Treasury reduced its net borrowing estimate for January through March by $97 billion from a projection of $541 billion three months ago. U.S. Treasury officials also see net borrowing of $200 billion in the second quarter, according to a report published by Bloomberg Tuesday.

Europe

Members of the European Union, except the United Kingdom and Czech Republic, have agreed to sign up for the new fiscal compact, a treaty designed to achieve stability and convergence in the Economic and Monetary Union. During the EU summit on Monday, the leaders finalized the treaty that makes every country that signs the deal committed to bringing in a "debt brake" or "golden rule" into its own legislation. The treaty introduces more automatic sanctions and stricter surveillance within the euro area, in particular by introducing a balanced budget rule. The 17 euro leaders will sign it at the next meeting in March, together with the non-euro area leaders of countries willing to join. The treaty will enter into force after ratification by 12 euro countries.

Portuguese bond yields climbed to the highest level in Eurozone's history amid concerns that Portugal may follow Greece in seeking a second bailout to avoid a bankruptcy. The yield on 10-year Portuguese bonds over German Bunds exceeded 15 percent for the first time in the euro era. On the other hand, Germany's consumer price inflation slowed slightly in January, and matched economists' forecast, preliminary data released by the Federal Statistical Office showed Monday. The consumer price index increased 2 percent on an annual basis in January, slightly slower than the 2.1 percent growth recorded in December.

EUR/USD: The pair is trading higher this morning in Asia after the comments of the Greek PM saying that a second bailout package for Greece may be agreed upon before the weekend. The comments boosted the appetite for Euro again and enabled the latter to recoup almost all the losses incurred on Monday. EUR/USD is hovering around the 1.3200 at the time of writing and it seems that the pair will most likely fluctuate between the resistance level of 1.3232 (Friday’s peak) and the support level of 1.3155 as investors are awaiting Greece to confirm the deal, although Greek Prime Minister Lucas Papademos has said his country is strongly committed to reaching an agreement. Volatility is expected today as general sentiments, speculations and any type of information that will be released with regards to the debt swap deal between Athens and its creditors will be affecting the trend of the pair. Investors should be cautious on the market and should also keep an eye on the figures of the German Unemployment Rate, French Consumer Spending, and CB Consumer Confidence and Employment Cost Index in the U.S which are set to release later today that might have an impact on the EUR/USD.
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USD/JPY: The dollar was slightly down against the yen on Tuesday in Asia on better than expected household spending and industrial production numbers in Japan. The pair is trading at 76.28 at the time of writing and trading on the pair will most likely remain sticky between the resistance level of 76.70 and the support level of 75.70 (mid-October 2011 lows). Investors will have to wait for some fundamental news to be published to be able to get some visibility on the pair. The U.S. is to produce government data on employment cost inflation, a key gauge of consumer inflation, followed by industry data on house price inflation and the purchasing managers’ index in Chicago. The country is also to release data on consumer confidence which might affect the pair movement later today. A wait and see approach is recommended.

Gold: Gold prices continues to be firmed in early Asian trading on Tuesday as investors snapped up positions in the metal after it took a hit in U.S. and European sessions Monday. The commodity is trading higher at $1736.73 an ounce at the time of writing and gold price will mostly likely fluctuate between the resistance level of $1756.29 an ounce and the Support level of $ 1718.28 an ounce with the uncertainty in Europe and cooled demand for USD.  Investors should remain cautious and wait for the latest developments in the Euro Zone and the U.S before entering the commodity.

DAX: European stocks dropped the most in six weeks as Portuguese bonds sank amid concern a meeting of the region’s leaders will fail to draw a line under the sovereign- debt crisis in the first half of the trading session Monday but in the second half (American session) the stock managed to recoup part of their losses and locked higher at the end of the American session. DAX is trading higher in Asia at 6491.00points at the time of writing and trading on the index will most likely take place within the resistance level of 6535.89 points and 6450.76 as investors are  awaiting for latest developments in the Euro Zone.