Growing concerns in Financial Markets cause risk aversion as U.S. Trade Deficit widens.

U.S. Dollar Trading (USD) once again was subject to a volatile session, initially rallying against the EUR before Trade Balance data ensured that any further gains were capped. The U.S. trade deficit widened more than expectations to -63.12 bln for the month of November, as economists had viewed the figure to come in at -59.1 bln (Prior: -57.77R). The increase in the gap was also a cause for the USD to limp against a number of other majors. In U.S. share markets the NASDAQ was down by -48.58 points (-1.95%) whilst the Dow Jones was also lower by -246.79 points (-1.92%). Crude oil continued its early 2008 decline falling by US$0.85 a barrel to US$92.86

The Euro (EUR) reversed its earlier losses versus the USD as the Traded Deficit widened more than expected for the month of November in the world’s largest economy. The EURUSD traded with a low of 1.4762 and a high of 1.4820 before closing the day at 1.4790 in the New York session. Looking ahead, Industrial Production data is scheduled for release out of the EZ, with forecast expecting to show -0.8%/2.8% decline for the month of November (Prior: 0.4%/3.8%) 

The Japanese Yen (JPY) was one of the best performing currencies on Friday as signs of credit market losses worsening prompted investors to pair carry trades. Following admission by UBS AG that 2008 was shaping as another difficult year for financials, and reports in the New York Times that Merrill Lynch & Co was preparing to double it write downs, by a further $15 billion from mortgage related losses. As a result of significant carry trades being squared, the Japanese Yen was able to reverse its 0.4% decline versus the dollar as much of its pressure was relieved. Overall the USDJPY traded with a low of 108.64 and a high of 109.70 before closing the day at 109.90 in the New York session.  

The Sterling (GBP) confirmed its fourth weekly decline versus the Euro, and came within a second consecutive weekly decline against the greenback as traders continued to add to bets that the BoE will be forced to cut interest rates next month. On last measurement, markets are now pricing in a 88% possibility that the Central bank will loosen its monetary policy by 25 bps on the 7th of February. In other news, Manufacturing data did little to give any confidence to the sterling pound, showing output had decreased for the month of November fuelling rate cut anticipations. In other news, the GBP was also one of the worst performing currencies against the JPY on reports that Merrill Lynch would double it losses in relation to the credit crunch, pushing the GBPJPY to a low of 212.07.  Overall the GBPUSD traded with a low of 1.9486 and a high of 1.9637 before closing the day at 1.9579 in the New York session.  Looking ahead PPI data is released on Monday for further clarification on the Manufacturing industry in the UK.

The Australian Dollar (AUD) traded in a technical range for much of the Asian session before reports on Merrill Lynch ensured the AUD closed lower to end the session. Overall the AUDUSD traded with a low 0.8910 and a high of 0.8970 before closing the day at 0.8918 in the New York session.

The Canadian Dollar (CAD) fell for a sixth day, its longest slide since March, as the economy unexpectedly lost jobs in December, reinforcing suspicions that the U.S. slowdown has hurt its neighboring economy. Overall the USDCAD traded with a low of 1.0071 and a high of 1.0221 before closing the day at 1.0191 in the New York session.

Gold (XAU) traded higher once again before falling short of the magical 900 mark as concerns grew that credit market losses would worsen. XAU traded with a low of 887.85 and a high of 898.00 
 
TECHNICAL COMMENTARY

Euro – 1.4785
Initial support at 1.4640 (Jan 9 low) followed by 1.4588 (Dec 31 low). Initial resistance is now located at 1.4825 (Jan 4 high) followed by 1.4968 (Nov 23 high).
 
Yen – 108.65
Initial support is located at 108.40 (Jan 7 low) followed by 107.91 (Jan 4 low). Initial resistance is now at 109.71 (Jan 8 high) followed by 110.12 (Jan 9 high)
 
Pound – 1.9580
Initial support at 1.9484 (Jan 11 low) followed by 1.9432 (Mar 20 low). Initial resistance is now at 1.9637 (Jan 11 high) followed by 1.9669 (Jan 10 high)
 
Australian Dollar – 0.8895
Initial support a 0.8812 (Jan 10 low) followed by 0.8784 (Jan 9 low). Initial resistance is now at 0.8977 (50% retracement of 0.9400 to 0.8553 decline) followed by 0.9073 (Nov 14 high)
 
Gold – 896.20
Initial support at 866.50 (Jan 10 low) followed by 853.60 (Jan 3 low). Initial resistance is now at 898.20 (Jan 11 high) followed by 899.35 (Jan open + Dec range)