French Downgrade Sparks Euro Sell off

Last week’s currency trading review

The Dollar was strong on the back of fresh Eurozone concerns with any attempts to rally being sold into and more bad news emerging daily. On Friday night S&P downgraded multiple European countries including France which lost its AAA rating. Data wise we saw a few negative misses which hampered the US stocks attempt to rally even as the debt crisis rolled on. Weekly jobless claims spiked to 399k vs. 375k previously. Consumer Sentiment improved though to 74 vs. 69.9 previously. The Euro was the main mover in the FX market with the S&P downgrades and Greece bailout jitters causing a broad sell off. EUR/AUD fell to all-time lows under 1.2300 and EUR/JPY fell to fresh 12 year lows at Y97. The outlook is still negative and only oversold technical helping to support. The EUR/USD is down -0.33% currently at 1.2676, after opening the week at 1.2712.

The Japanese Yen remained strong in the risk off market led by the EUR/JPY selling. AUD/JPY is the only exception with the strong support seen for the commodities and stocks helping to reverse most dips and the pair closed above Y79. USD/JPY is in a tight range and waiting for either US data to rally or EUR/JPY selling to push the major lower. The USD/JPY is down -0.03% currently at 76.94, after opening at 76.96. The GBP tracked the Euro broadly but was able to finish on a strong note on Friday as the EUR/GBP reversed to 0.8250 supports. The BOE held at 0.5% and kept the asset purchase program at 275b. The GBP/USD is down -0.69% currently at 1.5319 after opening at 1.5425. The AUD was able to decouple form the EUR/USD selling to rally on the back of strong stocks and gold. EUR/AUD extended all-time lows pushing down to 1.2250 and is showing no signs of reversing just yet. Traders are getting caught short as the usual correlation with the EUR/USD breaking down and instead trading the view the Aussie is an Asian currency. The AUD/USD is up +0.91% currently at 1.0320 after opening at 1.0226.

The Forex Trading Economic Data Ahead Preview

In the States; ON Tuesday, Bank of Canada Rate decision forecast to hold at 1.00%. On Wednesday, December Industrial Production forecast at 0.5% vs. -0.2% previously. On Thursday, December CPI forecast at 3.1% vs. 3.4% y/y previously. Weekly Jobless Claims are 389k vs. 399k previously. On Friday, December Existing Home Sales forecast at 5.2% vs. 4 % previously. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone; On Tuesday, January German Survey forecast at -49.8 vs. -53.8 previously. In the UK, On Tuesday, December CPI forecast at 4.2% vs. 4.8% previously y/y. On Wednesday December Weekly Jobless Claims are forecast at 8k vs. 3k previously. We will provide our previews and reviews of these data releases in the daily summary.

In Japan; On Thursday, November Industrial Production previously at -4.0% y/y. In Australia; On Thursday, NZD Q4 CPI forecast at 0.4% vs. 0.4% previously. Also December Unemployment Rate forecast at 5.3%. December employment change forecast at 10k vs. -6k previously. Un We will provide our previews and reviews of these data releases in the daily summary.

TECHNICAL COMMENTARY

Euro – 1.2645                             

Initial support at 1.2644 (Sept 10 2010 low) followed by 1.2588 (Aug 24 2010 low). Initial resistance is now located at 1.2879 (Jan 13 high) followed by 1.3080 (Dec 28 high)

Yen – 76.80

Initial support is located at 76.58 (Nov 18 low) followed by 76.00 (Big Figure). Initial resistance is now at 77.74 (Dec 30 high) followed by 78.98 (Nov 1 high).

Pound – 1.5315                                                                             

Initial support at 1.5272 (Aug 6 low) followed by 1.5125 (Jul 21 2010 low). Initial resistance is now at 1.5410 (Jan 6 high) followed by 1.5501 (Jan 10 high).

Australian Dollar – 1.0280

Initial support at 1.0229 (Jan 10 low) followed by the 1.0044 (Dec 29 low). Initial resistance is now at 1.0387 (Jan 3 low) followed by 1.0567 (Mar 3 high).

Gold – 1638

Initial support at 1630 (Jan 11 low) followed by 1605 (Jan 9 low). Initial resistance is now at 1662 (50% retrace of 1802.93-1522.65) followed by 1677 (Dec 13 high).

Oil – 99.90

Initial support at 99.00 (Intraday Support) followed by 97.50 (Intraday Support). Initial resistance is now at 100.00 (Intraday resistance) followed by 101.00 (Intraday Resistance).

Written by Anthony Darvall