Japan Dissolves Parliament, Yen Sold

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Stocks sank overnight in the US with politicians bringing attention to the looming fiscal debt crisis bickering over how to solve the issue. Released FOMC Minutes suggest most members want to continue asset buying after op-twist finishes. US data missed expectations forecast at -0.3% vs. -0.2% previously. Looking ahead, Weekly Jobless Claims forecast at 375k vs. 355k previously. November NY Fed forecast at -6.7 vs. -6.16 previously. Also October CPI forecast at 0.1% vs. 0.6% previously.

The Euro (EUR)
EUR/USD was the strongest currency in the market overnight able to ignore risk aversion from US equities losses. Day highs near 1.2780 traded after the FOMC minutes were released. The USD weakened post minutes but this didn’t last long however and we selling resumed in Asia Thursday. EUR/JPY was a major mover higher as the yen collapsed on political risks.

The Sterling (GBP)
The pound was sold as risk aversion crept higher in the US and stock losses accelerated. UK Data was decent with a 10k unemployment rise in October being countered by a drop in the Unemployment rate to 7.8% vs. 8.0% previously. GBP/USD has been making new lower lows this week but is oversold and may bounce if equities allow. Looking ahead, Q3 German GDP forecast 0.2% vs. 0.3% previously. October EU CPI forecast at 0.2% vs. 0.7% previously m/m. Also, US October Retail Sales forecast at 1.7% vs. 2.5% previously.

The Japanese Yen (JPY)
USD/JPY broke above Y80 in a dramatic day of trading after PM Noda moved to dissolve parliament and hold fresh elections. The political risk and uncertainty going forward could potentially create a situation for yen weakness across the board. EUR/JPY and AUD/JPY are both off highs in Asia Thursday however with risk aversion outweighing the election news.

Australian Dollar (AUD)
The aussie dropped 100 pips during the US session on the back of US equities losses and increasing Middle Eastern tensions. The reversal caught the market off guard with a steady grind higher in the last few sessions giving bulls into a false sense of security. Support is seen at 1.0350 and a break below would radically change the technical picture.

Oil And Gold (XAU)
Remained stuck inside yesterday’s range unable to break above resistance at $1733-38 and finding support just above $1720. Safe haven demand for both the USD and Gold is keeping both steady. OIL/USD bounced back to life with FOMC minutes suggesting central bank support will continue in 2013 at least. Fresh Middle Eastern tensions is keeping the sellers skittish. A based formed at $85 and we are now looking to resistance at $87.

Pairs To Watch
OIL/USD: Israeli/Gaza tensions to give temporary boost?

AUD/USD: Uptrend under Threat?

TECHNICAL COMMENTARY