Market Outlook for January 26, 2012 ~ eToro

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Recap of the Latest Global News

After the U.S. Dollar sold off across the board late in North American trading yesterday, it appeared that some relief was on the horizon, with the Greenback clawing back in early Asian trading on Thursday. This was merely a short-term correction, and by the time European markets opened up, the higher yielding currencies continued to surge.

Ahead of yesterday, the U.S. Dollar was primed for a strong year; after the ill-advised policy decision, one that does little more than buy time for banks to shore up their balance sheets, the U.S. Dollar is poised to be one of the worst performing majors in 2012. The implications of the Fed's decision go beyond this year, however. Now, with low rates indicated for the next two years, the groundwork for the American Lost Decade - no different than Japan's - has been laid.

Of interest has been the price action displayed by gold, which has surged through the $1700 per ounce mark and maintained its gains ahead of trading in New York. To me, this is a clear indication that market participants are worried about the U.S. Dollar losing its value substantially over the next few months. The key to watch would be the short-end of the U.S. Treasury yield curve: if these rates turn negative, the demand for precious metals will pick up.

Commodities News

Overall, the commodity currencies, mainly the Australian and New Zealand Dollars, are up big on the day, pacing gains against the Greenback ahead of trading in New York. The European currencies were also slightly firmer, though it's worth noting that they continue to lag the higher yielding currencies, as expected. With more easing expected out of the Bank of England and the European Central Bank, this is a trend that is expected to continue over the coming months.

FX News

Thus far, on Thursday, the Dow Jones FXCM Dollar Index is lower, trading at 9800.18, at the time this report was written, after opening at 9884.24. The index has traded mostly lower, with the high at 9931.27 and the low at 9781.99.

EUR/USD

Yesterday's move does feel like exhaustion but exhaustion can last several days. Support is 13135 and 13060 and the next upside objective is the area that surrounds 13200 (12/21 high, 11/25 low, measured levels at 13230/40).

USD/JPY

From last night - "The USDJPY reversed just shy of the 11/29 high (7828) and 200 day average (7835) today. Price did reach the 3rd standard deviation band on the daily (20 day lookback) for just the 25th time since 2000 and first time since the October 31 intervention. A simple back test shows that shorting the USDJPY at the close of the day in which it reached the 3rd std. dev band (and closing it 5 days later) would have yielded 10 wins and 6 losses (there are not 25 trades because the 5 day holding period results in overlapping days). The wins averaged 96.5 pips and the losses 112.6 pips. Structurally, respect the potential for one more high and a test of the November high at 7828."

NZD/USD

Is nearing 8240/80 (October high / 161.8% extension of the rally from the November low / 61.8% retracement of the decline from the 2011 high). One would expect strong resistance at this level. Support is now 8195 and 8150.

AUD/USD

The AUDUSD continues to soar and is nearing channel resistance (10700 today) as well as the October high at 10752. 10575 and 10620 are now supports.