US Inflationary data strengthen dollar. Japanese business sentiment at 2 year lows.

U.S. Dollar Trading (USD) continued to strengthen against a basket of majors as inflation data reports on Friday signaled the biggest increase seen in two years prompting speculators to trim bets that the Federal Reserve would look to cut rates any further. Core CPI data was released above expectations at 0.3%/2.3% (Forecast: 0.2%/2.3%) whilst markets played on Headline data confirming a rise by 0.8%/4.3% (Forecast: 0.6%/4.1%; Previous: 0.3%/3.5%) ensuring that futures markets pricing in a 100% chance of a rate cut in January declined rapidly to 82% for a 25 basis point cut. In U.S share markets the NASDAQ fell by -32.75 points (-1.23%) whilst the Dow Jones was also down -178.11 points (-1.32%). Crude oil fell on Friday as fears that rising inflation was causing stagflation, preventing the Federal Reserve loosening their monetary policy. Crude fell by US$0.98 a barrel to US$91.27. Looking ahead, the US begins a heavy data week with the release of TIC flows, Current Account, and NY Fed Manufacturing Survey all released on Monday.     

The Euro (EUR) ended the weak down 1.5% against the USD, its largest weekly decline since August 2007, on views that rising consumer prices would prevent the Federal Reserve from easing rates in the near term. In Eurozone specific data, the HICP was released flat on consensus. The EURUSD traded with a low of 1.4412 and a high of 1.4656 before closing the day at 1.4425 in the New York session. Looking ahead, PMI Manufacturing and Services will be released out of the Eurozone on Monday with analysts predicted figures of 52.5 and 53.9 respectively for the month of December.

The Japanese Yen (JPY) lost significant ground on the USD following the biggest increase in US consumer inflation in the last two years, caused investors to trim their USD shorts. Tankan reports on Friday did little to give the Yen any added boost, confirming its lowest reading in Business Sentiment in two years at 19 (Forecast: 21; Prior: 23). The Japanese Yen lost 1.1% versus the dollar trading with a low of 112.22 and a high of 113.59 before closing the session at 113.38.

The Sterling (GBP) lost plenty of ground on Friday as demand for the UK currency failed to respond for a second day to combined action by central banks to ease a year-end credit squeeze. Overall the GBPUSD traded with a low of 2.0150 and a high of 2.0448 before closing the day at 2.0154 in the New York session.

The Australian Dollar (AUD) slumped considerably on Friday following buoyant data out of the US. The Aussie Dollar was supported in the early part of the Asian session as Business Sentiment in Japan had slowed to its lowest level in 2 years, coupled with the RBA injected 700 million (AUD) in an attempt to prompt borrowing between other investment organizations, prompted traders to build on their high yielding carry trades. The moves were short lived however on the back of a broadly stronger US dollar. Overall the AUDUSD traded with a low of 0.8607 and a high of 0.8795 before closing the session at 0.8615.

Gold (XAU) eased to a week low as demand for the dollar eroded appeal for precious metals. Declines in oil prices also attributed to further downside moves on, with XAU traded with a low of 788.30 and a high of 803.50
 
TECHNICAL COMMENTARY

Euro – 1.4395
Initial support at 1.4354 (38.2% retracement of the 1.3361 to 1.4968 advance) followed by 1.4307 (1.4751 minus 1.4968 – 1.4528). Initial resistance is now located at 1.4658 (Dec 14 high) followed by 1.4749 (Dec 12 high).
 
Yen – 111.95
Initial support is located at 112.23 (Dec 14 low) followed by 111.42 (Dec 13 low). Initial resistance is now at 113.85 (61.8% retracement of the 117.95 to 107.23 decline) followed by 113.89 (Nov 8 high)
 
Pound – 2.0165
Initial support at 2.0149 (Dec 14 low) followed by 2.0086 (Sep 25 low). Initial resistance is now at 2.0448 (Dec 14 high) followed by 2.0484 (Dec 13 high)
 
Australian Dollar – 0.8635
Initial support a 0.8606 (Dec 14 low) followed by 0.8538 (38.2% retracement of the 0.7676 to 0.9400 advance). Initial resistance is now at 0.8795 (Dec 14 high) followed by 0.8907 (Dec 12 high)
 
Gold – 794.40
Initial support at 788.00 (Dec 14 low) followed by 777.20 (Dec 3 low). Initial resistance is now at 812.20 (Dec 13 high) followed by 817.20 (December 12 high)