EU Morning Report- Euro recovers, risk appetite dominates markets
The euro rose against its major counterparts and Asian equities turned positive after the EU summit. EU leaders agreed on fiscal compact designed to prevent overspending in the eurozone and stop the debt crisis from spreading. Only UK and Czech Republic refused to sign the compact. The agreement boosted risk appetite in the markets as this is a significant move towards a “fiscal union”. Optimism was further boosted after the Greek Prime Minister Papademos said that the negotiations with the bondholders made a significant progress raising hopes for an agreement by the end of this week.
Italy’s bond auction was successful yesterday after the Italian treasury managed to sell 7.5 bln euro worth of bonds at lower yields but Portugal’s 10-year government bond yields reached 17% raising fears that Lisbon may be the next to seek a second bailout. Eurozone unemployment rate is expected later today. Versus the greenback, the euro jumped as high as 1.3198 today from 1.3076.
The US dollar is under pressure today as risk appetite starts to recover. Against the Japanese yen, the dollar dipped to a three month low at 76.17 from 76.75. The yen’s rise increased concerns that it may hurt Japanese exports adding more on speculation that the Bank of Japan may intervene in the currency markets to stop the yen from rising further. Versus the Swiss franc, the dollar fell to 0.9130 from 0.9209.
The British pound rose against the greenback on expectations Greece may reach an agreement with its private creditors by the end of the week. The pair climbed to 1.5754 from 1.5654.
Oil prices rose to 99.36 dollars a barrel today from 98.40. Gold rallied to 1740.83 dollars an ounce from 1716.19. Silver edged higher to 33.79 dollars an ounce from 33.04
Greece Dominating Headlines as Talks Continue
U.S. Dollar Trading (USD) the mood darkened in Europe and we saw most pairs follow the Euro lower to the benefit of the USD. The biggest concern was the fresh Greece conflict this time between Germany demanding more oversight of the Greece budget and the Greece Fin Min Furious denial of this possibility. The US session saw a late rally off lows and the sentiment in Asia this morning is improving on further. In US stocks, DJIA -6 points closing at 12653, S&P -3 points closing at 1313 and NASDAQ -4 points closing at 2801. Looking ahead, January Chicago PMI forecast at 63 vs. 62.2. January Consumer Confidence forecast 68 vs. 64.5 previously.
The Euro (EUR) the Euro selling began in Asia and continued throughout Europe on the back of conflict between Germany/Greece on the next Greece budget but some positive comments from Portugal and seemingly successful EU summit allowed a bounce. The buying is accelerating on Tuesday’s Asian session on the back of reports comments from Greece PM Papademos that talks were making significant progress. Looking ahead, December Unemployment forecast at 10.4% vs. 10.3% previously. Also, December Retail Sales forecast at 0.9% vs. -0.9% previously.
The Japanese Yen (JPY) the downtrend continued overnight with the USD not getting respite from the EUR/USD with EUR/JPY falling just as quick. The Yen is resuming its advance towards Y75 and could prompt more intervention talk or actually intervention if the selling accelerates. UPDATE December Industrial Production at 4% vs. 3% forecast m/m.
The Sterling (GBP) GBP/USD outperformed the Euro and most pairs overnight with EUR/GBP providing support and the Cable pivoting the 1.5700 level. The outlook is mixed but if the Euro rallies than the next leg higher may see a 1.6000 test. Looking ahead, December Credit is expected at 0.4bln vs. 0.4bln.
Australian Dollar (AUD) the AUD/USD was technical set up for a significant correction after the double top at 1.0680 and this proved correct with a sharp fall to 1.0530 before reversing with fresh buyers and the bounce in US stocks. The outlook and trend is still higher with a test of 1.1000 likely. UPDATE December Business confidence at 3 vs. 2 previously.
Oil & Gold (XAU) Gold dipped to $1720 before resuming its strength back above $1630 by the close. Oil dipped to recent supports under $98.50 before rebounding with US stocks into the close.
TECHNICAL COMMENTARY
| Currency | Sup 2 | Sup 1 | Spot | Res 1 | Res 2 |
| EUR/USD | 1.2931 | 1.3078 | 1.3175 | 1.3244 | 1.3386 |
| USD/JPY | 75.35 | 76.00 | 76.20 | 77.49 | 77.82 |
| GBP/USD | 1.5517 | 1.5642 | 1.5730 | 1.5780 | 1.5889 |
| AUD/USD | 1.0428 | 1.0573 | 1.0635 | 1.0765 | 1.0753 |
| XAU/USD | 1681.00 | 1700 | 1735 | 1763 | 1790 |
| OIL/USD | 97.00 | 98.50 | 99.40 | 100.00 | 101.00 |
Euro – 1.3175
Initial support at 1.3078 (Jan 27 low) followed by 1.2931 (Jan25 low). Initial resistance is now located at 1.3244 (38.2% retrace of 1.4247-1.2624) followed by 1.3386 (Dec 12 high)
Yen – 76.20
Initial support is located at 76.00 (big figure) followed by 75.35 (Big Figure). Initial resistance is now at 77.49 (Jan 27) followed by 77.82 (Jan 26 high).
Pound – 1.5730
Initial support at 1.5642 (Jan 27 low) followed by 1.5517 (Jan 23 low). Initial resistance is now at 1.5780 (Nov 30 high) followed by 1.5889 (Nov 18 high).
Australian Dollar – 1.0635
Initial support at 1.0573 (Jan 23 high) followed by the 1.0428 (Jan 4 low). Initial resistance is now at 1.0765 (Sept 1 high) followed by 1.1007 (Aug 2 high).
Gold – 1735
Initial support at 1700 (Big figure resistance) followed by 1681 (Jan 23 high). Initial resistance is now at 1763 (Dec 2 high) followed by 1790 (former trendline support drawn off Oct 20 low).
Oil – 99.40
Initial support at 98.50 (Intraday Support) followed by 97.00 (Intraday Support). Initial resistance is now at 100.00 (Intraday resistance) followed by 101.00 (Intraday Resistance).