Dollar Rally Falters

Dollar strength from last week’s FOMC minutes surprise faded overnight and we saw EUR/USD bounce off 1.3000 and USD/JPY fall back from the Y88 handle. Attention is turning to the ECB later this week and their outlook for the eurozone in 2013. Looking ahead, January IBD Economic Optimism previously at 45.1 previously.

The Euro (EUR)
Euro bears were caught short yesterday with the 1.3000 level holding two attempts and putting a short term base in overnight. Shorts were squeezed back above 1.3120 and could head towards 1.3300 the top of the recent trading range. EUR/AUD and EUR/JPY both supported with strong moves in New York. Some speculation about the ECB meeting on Thursday with a think tank report overnight suggesting the ECB will not cut rates.

The Sterling (GBP)
GBP/USD took advantage of the dollar weakness grinding back above 1.6100 and is well positioned to test higher now the market has stabilized. December Halifax gained 1.3% vs. 0% forecast m/m. Looking ahead, German November Trade Balance forecast at 15 vs. 15.2bn previously. November Industrial Orders forecast at -1.4% vs. 3.9% previously

The Japanese Yen (JPY)
USD/JPY fell back from the Y88 level with profit taking adding to dollar weakness later in the day. EUR/JPY helped support in the US session rising from Y114.10 to Y115.10. Jawboning from Japanese officials remains supportive but something of more substance will be needed for a test of the ley Y90 level.

Australian Dollar (AUD)
The AUD/USD did well in the commodity rally overnight with Oil pushing higher and Iron ore remaining at 2011 levels. AUD/JPY is getting support on dips and remains elevated near the Y92 level. AUD/USD is finding tough resistance above 1.0500. Looking ahead, November Trade Balance forecast at -2300mn vs. -2088mn previously.

Oil and Gold (XAU)
Gold started the day strong breaking above $1660 before once again faltering and we have ended mixed at $1645. Oil was quiet but remained above $93 consolidating recent gains.

Pairs To Watch
EUR/USD: Topside now in view 1.3300?

USD/JPY: Downside Support at Y87.35?

TECHNICAL COMMENTARY