Reserve Bank of Australia hikes rate by 25 bps as expected and signals further close monitoring of inflation.

Currency Trading Summary

U.S. Dollar Trading (USD) was subject to a calmer session. Although still pressured against a number of majors due to an unexpected contraction in the Non Farm Payrolls for December by -17 k jobs (Forecast +63K), the market heavily considers whether the FED has actually taken and promised satisfactory steps to handle the current mild recessional economic environment. Traders expect further rate cut from the Federal Reserve in the next meeting. Nonetheless, any further losses to the USD may be limited and USD appreciation due to market recovery can not be excluded. There seem to be heavy interests in selling the EUR at its rallies as long as the EU ECB doesn’t assure it has inflation and growth fully under control. Equity markets fell slightly on MON as a corrective move to FRI gains.

The Euro (EUR) remained fairly range bound and solid above the 1.48 from where the market will probably start pricing in the ECB rate decision coming on THU. EU equity markets remained steady in small positive. The market saw a little changed PPI reading which did not affect the rate much. Today we expect EU PMI little changed from previous and improved numbers in EU Retails sales

The Japanese Yen (JPY) once again tracked equity markets, with a rally in Asian stock prices pressuring the JPY during early hours MON, and a consequent Asian markets correction tonight giving the JPY strong support; an overall cycle in carry-trading. The USDJPY traded with a low of approx. 106.58 and a high of 107.10.

The Sterling (GBP) rose the most against the dollar in more than a week and climbed versus the EUR as a rally in European and Asian stocks spurred demand for higher- yielding currencies. Today’s House price index may re-confirm a slowing housing market and hence raise expectations for a rate cut to take place on THU. Overall, the GBP climbed against the USD from the lowest in two weeks, rising to $1.9761 by 4:20 p.m. in London, from $1.9651 at the end of last week. The U.K. currency gained to 75 pence per EUR, from 75.31 pence.

The Australian Dollar (AUD) was initially sold off slightly up to of the well expected rate hike by RBA, but RBA comments signaling a next future hike gave it a boost up to 0.9090 levels from which it retreated to support of 0.9060.

Gold (XAU) continued its step-wise sell-off but recovered from 890 levels finally slightly above the 900 level, as FED rate cuts add confidence to the market that the credit crisis gets under control. Oil also remained below the 90 level although Turkey’s military attacks in Kurdish areas of northern Iraq raised expectations of a price rise. 
 

TECHNICAL COMMENTARY

Euro – 1.4820
Initial support is at 1.4810 followed by 1.4785. Resistance is located at 1.4898 followed by 1.4925
 
Yen – 106.80
Initial support is at 106.65 followed by 106.35. Initial resistance is at 107.05 followed by 107.45
 
Pound – 1.9720
Initial support is at 1.9655 followed by 1.9630. Initial resistance is at 1.9785 followed by 1.9820
 
Australian Dollar – 0.9075
Initial support is at 0.9035 followed by 0.9005. Initial resistance is currently at 0.9090 followed by 0.9140
 
Gold – 901.50
Initial support is at 899 followed by 890. Initial resistance is at 906 followed by 917