Daily Market Analysis: Currency Report

New U.S. unemployment claims fell to a lower than expected level in the final week of December. According to figures released Thursday by the Labor Department, new unemployment claims coming in at a seasonally adjusted level of 372,000, a drop of 15,000 from the previous week's revised figures. While the Institute for Supply Management released a report on Thursday showing modestly faster growth in the service sector in the month of December. The ISM said its non-manufacturing index edged up to 52.6 in December from 52.0 in November, with a reading above 50 indicating growth in the service sector.
China's foreign direct investment totaled $115 billion in 2011, up 9 percent from 2010, the China Daily reported on Friday, citing a statement by Liu Yajun, director-general of the Department of Foreign Investment Administration with the Ministry of Commerce. An article published by Bloomberg stated that China will roll out measures to boost consumption this year as it strives to meet challenges posed by a global slowdown, Commerce Minister Chen Deming said. The government is studying policies to encourage spending on energy-saving products, and will take other measures including the promotion of online shopping and tourism, Chen told the ministry’s annual works conference, according to a statement posted on its website yesterday.

The U.K. government's gross reserves fell to $93.85 billion in December from $96.93 billion a month ago, the HM Treasury said Thursday. Net reserves fell by $1.94 billion in December, bringing the end-December total to $43.62 billion. The Bank of England's net holdings of foreign currency and gold fell by $31.76 million to -$8.16 million compared with $23.60 million at end-November. On the other hand, France raised EUR 7.963 billion from a sale of its long-term bonds on Thursday, but borrowing costs for the 10-year debt increased. The maximum target set for the OAT sale was EUR 8 billion. The auction attracted bids totaling EUR 14.956 billion. The sale took place amid worries that the country may lose its triple-A rating soon.

EUR/USD: The pair dropped sharply yesterday, affected by strong economic data from the U.S and by the downbeat French bond auction and the flow of weak fundamentals from Europe. EUR/USD gave more that 300pips since the beginning of the year and trading at the weakest level in 15 months versus the dollar. Today, the pair is trading at a new low ground in Asia at 1.2762. Market sentiments remain very weak on the pair and EUR/USD is more likely to fell to the key level 1.2700 as some poor economic data a set to release from Germany and Europe today. We might have some upward corrections on the pair following yesterday’s sharp fall and on speculation up to the 23.6% Fibonacci level (1.2801) intra trade. These corrections might be opportunities to enter short on the pair. The support level may be at 1.2740-1.2730 and the resistance level is at 1.2844.
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EUR/CAD: The Canadian dollar extended gains below 1.3050 versus the Euro on Thursday, and is trading at its lowest levels since January 2011. EUR/CAD touched a fresh 12-month low of 1.3001 before slight bounce to end the American session at 1.3040 yesterday. Today, the pair is trading in the range of 1.3045-1.3017 in Asia. The current support level is at 1.3006 and the resistance level is at 1.3071. Investors seems bearish on Euro and the pair is most likely to fall below the psychological level of 1.3000 to hover around the 1.2950 level later after the publication of the Canadian Unemployment rate which is expected to be flat at 7.4% and Economic data from Europe and Germany which are expected to be poor.
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Gold: Gold traders are the most bullish in a month as Europe’s deepening debt crisis and increasing tensions over Iran drove the metal to its longest winning streak since October. The metal is trading higher in Asia at $1628.10 an ounce and is more likely to continue its rally to test the resistance level at $1641.62 an ounce as U.S. Iranian tensions increased, yesterday, when Iran warned the U.S. about sending an aircraft carrier to the Persian Gulf to counter a 10 day naval exercise conducted by Iran's navy. The support level is at $1598.45.

DOW: U.S. stocks mostly continued their New Year’s rally Thursday on improved job data and positive bank sentiment despite euro zone concerns and reduced profit forecasts. The Dow bounced from a low of 12217.6 points to a peak of 12371.2 points intra trade. The index is trading in the slightly higher in Asia this morning at 12309.7 points and is likely to continue this upward trend to test the resistance level at 12371.2 but prudence is recommended on the Index. It will be wise to wait for the Unemployment Rate and Nonfarm Payrolls figures, which are set to be released in the U.S later today to have more visibility on the Index. Volatility is expected.