Market Analysis Forex - 05 january 2012

Major European equity markets ended the session lower, led by the Italian MIB and Spanish IBEX, down -2.04% and -1.72% respectively. There was major weakness in the Euro as concerns over further debt auctions and difficulty raising capital caused EURUSD to touch below 1.2900 before pulling back to its present level at 1.2932. Yesterday's German bund auction was better than expected considering the weak November auctions and the French plan to auction up to €8 billion in a longer term bond auction later today. The EU also agreed in principle to stop importing oil from Iran causing oil to jump higher to almost $103.69 before retracing to its current level around $102.95. The EU decision-makers will work to ratify sanctions in their next meeting on January 30th.
Asian stocks are mixed this session as the Hang Seng moves higher 0.40% while the ASX shows continued weakness, now down -1.13%. The Nikkei is also lower, down -0.62%, as a strong Yen raises concerns that the European crisis coupled with an appreciating currency will further impair growth. The Aussie-dollar fell against the USD and lost ground versus all 16 major peers today after weaker than expected consumer spending figures and continued services industry contraction. AUDUSD is trading -0.40% lower at 1.0326. The Chinese Central Bank also cut the daily reference rate which translated to a drop in the Yuan and a boost for copper. The industrial metal is trading nearly 1% higher as the Chinese seek to bolster their exports and expand industrial production.
The Dow Jones and S&P 500 ended yesterday marginally higher after starting the session lower as better than expected results from the U.S. automakers eased recovery concerns. Retail figures are also coming in above expectations, propelling the consumer discretionary spending sector higher than the 9 other major coverage groups in the S&P 500. There are multiple economic releases expected from the U.S. today including the ADP Nonfarm Employment Change and Initial Jobless claims. These are expected to show an improving labor market in the U.S. and are good indicators of fundamental economic health. Lastly, gold is moving higher, extending its best 5-day rally in the last few months as demand pushes prices to $1614.59 per ounce.

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