Soft US data, and plunging stock prices cause market volatility. Bernanke comments on a slowing 2008

U.S. Dollar Trading (USD) declined with respect to a number of majors as Federal Reserve Chairman Ben Bernanke informed the Central Bank that will take “substantive additional action” to spur the economy, as the Philly Fed survey declined to -20.9 for the month of January, well short of the forecasted -1, confirming a six year low. Bernanke’s comments added to speculation that the Federal Reserve will slash it benchmark by 50 basis points on the 30th of January, with ongoing cuts imminent in the latter part of the quarter. Bernanke reiterated that the outlook for growth in 2008 “has worsened” and “the downside risks to growth have become more pronounced”. In his testimony to the House Budget Committee in Washington, he also said a “temporary'' fiscal stimulus would help support the economy. In other data, housing starts fell to 1.006 mln for December, whilst jobless claims declined to 301K. In U.S. share markets the NASDAQ closed lower by 47.69 points (-1.99%) whilst the Dow Jones also tumbled by 306.95 points (-2.46%). Crude oil also eased by US$0.33 a barrel to US$89.80. Looking ahead, Michigan sentiment survey is expected to be released at 89.7 for the month of January, down from the previous 91.

The Euro (EUR) rebounded following dovish comment from the head of the Federal Reserve although any further upside moves were limited with a broad sell off against the Japanese Yen for the third straight day. Overall the EURUSD traded with a low of 1.4589 and a high of 1.4715 before closing the day at 1.4671 in the New York session.

The Japanese Yen (JPY) has soared in recent days as fears of US recession have prompted a fresh exodus from carry trades. The current turmoil in financial markets has revealed the extent to which the low-yielding yen has funded soaring global asset prices in recent years. Overall the USDJPY traded with a low of 106.61 and a high of 107.67 before closing the day at 107.00 in the New York session.

The Sterling (GBP) rebounded on a broadly weaker dollar, following Bernanke comments on Thursday. Nonetheless, the GBP remains overvalued against a number of majors on Fundamental measures, such as Purchasing Power Parity, UK’s current account deficit is at 5.7 per cent of output. The GBPUSD traded with a low of 1.9618 and a high of 1.9790 before closing the day at 1.9712 in the New York session. Retail Sales for the month of December will be released at 09:30 GMT, with forecasts lying at 0.2% (Previous: 0.4%)

The Australian Dollar (AUD) Traded on the back of other majors overnight, initially gaining on the back of a weaker dollar, yet stock prices limited the Aussie, as AUDJPY crosses lost appeal amongst traders. Overall the AUDUSD traded with a low of 0.8785 and a high of 0.8880 before closing the day at 0.8809 in the New York session.

Gold (XAU) erased earlier gains and closed lower for a third day on Thursday. Losses were limited as the appeal of gold as a safe haven increased after the Federal Reserve chairman said the outlook for U.S. economic growth has “worsened”. XAU traded with a low of 876.90 and a high of 890.10
 
TECHNICAL COMMENTARY

Euro – 1.4630
Initial support at 1.4590 (Jan 17 low) followed by 1.4570 (Dec 31 reaction low). Initial resistance is now located at 1.4716 (Jan 17 high) followed by 1.4859 (Jan 16 high).
 
Yen – 106.85
Initial support is located at 105.92 (Jan 16 low) followed by 105.00 (round Number Resistance). Initial resistance is now at 107.95 (Jan 16 high) followed by 108.52 (61.8% retracement of the 110.12 to 105.92 decline)
 
Pound – 1.9715
Initial support at 1.9607 (Jan 17 low) followed by 1.9484 (Jan 11 low). Initial resistance is now at 1.9793 (Jan 17 high) followed by 1.9829 (Jan 8 high)
 
Australian Dollar – 0.8725
Initial support a 0.8684 (Jan 7 reaction low) followed by 0.8580 (Dec 21, 2007 low). Initial resistance is now at 0.8881 (Jan 17 high) followed by 0.9022 (Jan 15 high)
 
Gold – 876.00
Initial support at 874.70 (Jan 17 low) followed by 866.5 (Jan 10 low). Initial resistance is now at 890.30 (Jan 17 high) followed by 899.75 (Jan 16 high)