Daily Market Analysis: Currency Report

U.S. construction industry showed some recovery signs as U.S. housing starts and building permits both increased by more than expected in the month of November. The figures released Tuesday by the Commerce Department showed that new housing starts came in at a seasonally adjusted annual rate of 685,000 in November, 9.3 percent above the revised October and building permits rose in November, coming in at an annual rate of 681,000, 5.7 percent above October levels. On the other hand, Canadian consumer prices was slightly higher by 0.1 percent in November compared to the previous month, official data showed Tuesday morning.

The Bank of Japan on Wednesday unanimously decided to keep its interest rates unchanged at zero to 0.1 percent, but lowered its economic view citing impacts of the global economic slowdown. The Ministry of Finance said today in Tokyo, that Japan’s exports fell for a second straight month. Shipments dropped a more-than-expected 4.5 percent in November from a year earlier.

Reports from Europe boosted market sentiments Tuesday. German IFO Business Climate Index rose to 107.2 in December from 106.6, defying analyst estimate of a decline to 106.3. In addition, The Spanish Treasury sold €5.64 billion in 3 and 6 bonds at a considerably lower cost. The yield of 3-month debt was at 1.73% (previous auction in November was at 5.11%) while the 6-month debt was at 2.45% (previous 5.22%), and the demand for these bonds rose considerably. In Greece a debt auction also took place as it sold €1.3B in 13-week bills at a yield of 4.68%, slightly higher from the previous action (in November at 4.63%). Today, focus will be on the ECB, as the latter called for bids for an unlimited 3 year refinancing operation at a fixed cost. Bids will be received today and results are estimated to be published on Wednesday at 14:30 GMT. Estimations of the volume of the operation lie between €250B and €400B.

EUR/USD:

Euro enjoyed a bullish run Tuesday on the back of a positive Spanish bond auction. The pair jumped by nearly 126 pips to trade at a peak of 1.3131 intra trade. Today, the pair is trading slightly lower in Asia in the range of 1.3125- 1.3100. The pair may extend its bullish trend today as ECB will launch a new lending facility that may further decrease pressure on European banks and Sovereign bonds. These slight corrections might be a good opportunity to enter the market with a buy order at 78.6% Fibonacci level (1.3116) as we might see the pair break above the 1.3200 level today. The support level is at 1.3101 and the current resistance level is at 1.3131.




USD/JPY

The dollar weakened against major currencies earlier during the day as better-than-expected German business confidence figures and demand at the Spanish government's bond auction fueled optimism worldwide. USD/JPY fluctuated significantly yesterday as the latter dropped to low of 77.70 and recouped part of the losses late in the same session. Today, the pair is trading in the region of 77.86-77.73. The pair might fall further today to test the support level of 77.70 as snapping up positions in the Japanese currency, a riskier but more rewarding asset. However, prudence is recommended as Bank of Japan officials were tentatively set to speak on the status of the Japanese economy and interest rates. The Resistance level is at 77.88.



EUR/NZD
The pair decreased sharply by nearly 200 pips yesterday to trade below the key level of 1.7000 after the release of N.Z. data on Current Account. Today, the pair is continuing its bearish trend on the Asian market. Traders will keep a close eye on the 3Q GDP reading scheduled for release today. An expected jump in activity through the quarter could further support the Aussie. The support level may be at 1.6843 (four weeks lows) and the resistance level is at 1.7131. The pair seems on its way to test the support level and it may even break below it.

Crude oil prices rose on Tuesday, as the US dollar lost strength following data out from both German and US economies, where Germany’s IFO business climate inclined above expectations. The Commodity gained nearly $4 to peak at $ 98.37 a barrel yesterday. Today, Oil is trading in the narrow range of $98.37 - $97.54. Oil might increase further today to reach $99.50 level today as ECB will launch a new lending facility that may further decrease pressure in the Euro Zone.





DAX

European stocks surged higher on Tuesday on rising German confidence numbers, surprisingly positive U.S. housing data and a better than expected Spanish note auction. The index increased sharply by 285.33 points and kept the same trend today in Asia. This bullish run seems to continue ahead of EBC actions to call for bids for an unlimited 3 year refinancing operation at a fixed cost.