Middle East Tension Sparks Oil Volatility

US data missed overnight and this led to another day of heavy losses on Friday. Middle Eastern tensions spiked higher overnight with Israel bombing Gaza. The dollar was bought on safe haven demand making its biggest gains against the yen which was sold on Japanese political concerns. US Weekly Jobless Claims 439k vs. 375k forecast on Hurricane Sandy distortions. Looking ahead, October Industrial Output forecast at 0.2% vs. 0.4%m/m. Also Fed Chairman Bernanke Speaks.

The Euro (EUR)
the EUR/USD continued to receive support across the board after finding buyers at 1.2700 and the successful Greece Aid talks earlier this week. Israeli and Spanish concerns capped the rally at 1.2800. The outlook is mixed with the chances of a substantial relief rally for the eurozone hampered by progressively worse data from the region and US. Asia is still a bright spot for 2013 but could also be dragged into a recession with the rest of the world.

The Sterling (GBP)
The British pound was quite stable against the greenback but lost further ground against the euro. GBP/USD found support at 1.5850 again and crept higher. UK Retail Sales missed at -0.8% vs. -0.1% previously. Looking ahead, Buba President Weidmann speaks.

The Japanese Yen (JPY)
USD/JPY accelerated higher after breaking resistance at Y80.40 we moved above Y81 in the US session. The snap Japanese elections and competing rhetoric between the two leaders of the largest parties in Japan has put the yen under heavy selling pressure over the last two days. EUR/JPY has taken advantage moving from Y101 to Y104 in a sharp rally that has caught the market short.

Australian Dollar (AUD)
The aussie continued to be pressured by weak US stocks with support at 1.0350 broken in Europe and we hit day lows at 1.0310 later in the US session. Most AUD crosses have been giving back gains in the last two trading days but they have been strong over the last month. AAA rating and high interest rates should allow the aussie to do well once the risk aversion settles down.

Oil And Gold (XAU)
Gold dropped aggressively from the open of the US session down $15oz in 30mins before stabilizing and closing at $1716. The uptrend is under threat and we need to break above $1738 soon or risk an even larger pullbacks. OIL/USD initially tested $87 a barrel in Europe before testing $85 again in the US session. New Oil Contract begins.

Pairs To Watch
OIL/USD: $85 key support in play

USD/JPY: Uptrend begins, buy dips

TECHNICAL COMMENTARY