Soft Dec CPI casts doubt on BOJ rates. German IFO index unexpectedly falls in January. Market focus turns to G7 (Feb9/10). Rise in volatility in the Currency markets. CURRENCY TRADING SUMMARY – 26 JANUARY 07 (05:00GMT)
- U.S. Dollar (USD) rose on Thursday, tracking a rise in U.S. Treasury yields to 5-month highs, and gaining momentum after the U.S. currency broke through key technical levels on a day with little major economic data to guide the market. The dollar hardly reacted after a report showed US jobless claims rose 36,000 in latest week and existing home sales fell more than expected in December. The decline in 2006 in existing home sales was the biggest since 1989. Looking ahead Durable Goods Orders (due at 13:30GMT) and New Home sales (due at 15:00GMT). Durable Goods orders are forecasted to rise by 0.5% higher than the previous -1.1%. Market expectations for New Home Sales are 1.05 million slightly higher than the previous 1.047 million. In other markets, the Dow Jones was down 119.21 points (-0.94%) and the NASDAQ was down 32.04 points (-1.3%). Crude Oil was down below US$ 55 a barrel on profit taking spurred by a steep drop in natural gas futures.
- The Euro (EUR) was under pressure from a weaker-than-expected reading from the German Ifo business sentiment survey earlier in the European session. The Ifo headline index slipped to 107.9 from December’s 108.7, confounding forecast for a rise to 109.
- The Japanese Yen (JPY) slumped across the board on Friday after slightly soft consumer price figures cast doubt on whether the Bank of Japan will raise interest rates next month. Core nationwide CPI rose 0.1 percent in December from the same period last year, slightly lower than expectations for a 0.2 percent rise. Japan's top government spokesman Shyozaki said on Friday that currency movements could be one factor for the Bank of Japan to consider when conducting monetary policy but it is not the sole determinant. Thursday the yen edged higher as investors further unwound overextended positions against the currency amid concerns the G7 may address its weakness at a meeting next month. However, German Deputy Economy Minister Bernd Pfaffenbach said that Germany was not planning to put recent yen weakness on the agenda of an upcoming Group of Seven meeting. Hiroshi Watanabe, Japan’s top financial diplomat, earlier said that he did not expect the yen to be a major issue at the meeting, which Germany will host next month (Feb9/10).
- The Sterling (GBP) firmed slightly versus the dollar, regaining some poise after sharp falls from this week’s 14-year peaks prompted by uncertainty over Britain’s monetary policy outlook.
- The Australian Dollar (AUD) tumbled below $0.7750 to a two-month low on Thursday, extending losses made after unexpectedly soft inflation data earlier in the week.
- Gold (XAU) Gold dropped on Friday having rallied a day earlier to a five-month high of $654 an ounce as investors saw potential for it to scale new peaks on expectations of a weakening of the US dollar and higher oil prices. Oil prices fell below $55 as profit taking and ample US inventories countered cold weather in top consuming regions.
TECHNICAL COMMENTARY Currency | Sup2 | Sup1 | Spot | Res1 | Res2 | EUR/USD | 1.2897 | 1.2915 | 1.2925 | 1.3054 | 1.3117 | USD/JPY | 120.06 | 120.19 | 121.39 | 121.65 | 121.81 | GBP/USD | 1.9512 | 1.9625 | 1.9651 | 1.9833 | 1.9917 | AUD/USD | 0.7698 | 0.7727 | 0.7744 | 0.7821 | 0.7940 | XAU/USD | 633.7 | 639.25 | 645.40 | 654.6 | 656.2 |
Initial support at 1.2915 (Jan 25 low) followed by 1.2897 (Jan 18 low). Initial resistance is now located at 1.3054 (Jan 9 high and 38.2% of 1.3368 to 1.2865) followed by 1.3117 (50% retracement of the 1.3368 to 1.2865 decline). Initial support is located at 120.19 (Jan 25 low) followed by 120.06 (Jan 15 corrective low). Initial resistance is now at 121.65 (Jan 26 high) followed by 121.81 (Jan 22 trend high) Initial support at 1.9625 (Jan 25 low) followed by 1.9512 (61.8% retracement of the 1.9262 to 1.9917 advance). Initial resistance is now at 1.9833 (Jan 24 high) followed by 1.9917 (Jan 23 trend high) - Australian Dollar – 0.7744
Initial support at 0.7727 (Jan 25 low) followed by 0.7698 (50% retracement of the 0.7414-0.7982 rally). Initial resistance is now at 0.794 (Jan 23 high) followed by 0.7982 (Jan 3 trend high). Initial support at 639.25 (Jan 24 corrective low) followed by 633.7 (Jan 23 low). Initial resistance is now at 654.6 (Jan 25 high) followed by 656.2 (Aug 2. 2006 reaction high) Forex trading involves substantial risk of loss, and may not be suitable for everyone. 
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