Renewed risk appetite increases support for EURO, leaves USD and Gold hesitant

EURO:

Seen against the US Dollar, the Euro was up to one-month highs, hitting 1.3027 after German lawmakers approved Greece's latest rescue package.

The EUR/USD finally closed at 1.3004 last Friday, and it looks unlikely that the currency pair will find the necessary momentum to reach higher than 1.3150 given that most of the Greek deal has already been priced in.

So far the pair, currently trading around 1.30, failed to close above 1.31 the first key resistance area represented by a major bearish trend line from May 2011 high. A clear break at close could push the Euro to the next key resistance around 1.3150.

The Euro rose after it was agreed that European governments will be reducing interest rates charged to Greece, that interest payments for EFSF loans will be deferred by 10 years and also that the maturity of the loans will be extended to 30 years from 15 years.

The deal still has to be ratified at the national level. The EZ/IMF new debt targetshave now been set to drop to 124% of GDP by 2020.

German chancellor Angela Merkel opened the possibility that Berlin may ultimately accept a write-off of Greek debt, as throughout this week policy makers will attempt to engineer a buyback that's crucial for Greece to receive more funding.

NextThursday the ECB is expected to announce its interest rate decision. The ECB should keep its interest rate on hold to 0.75%.

JPY

Japanese data showed that Japanese retail trade (Y/Y) slipped by -1.2% from the previous +0.4%. The Japanese yen dropped on Friday, but its decline was just short of making a fresh seven and a half month low versus the dollar.

The Yen fell as Japanese firms squared their positions for month-end triggering a series of stop-loss selling. Furthermore consumer prices stagnated in October, adding to speculation the central bank will increase stimulus to spur inflation.

The Yen is the biggest decliner this year amongst the 10 developed nation's currencies.

In Asia, optimism continued to dominate the market as most of the major indices were in the green. Asian shares rallied to a nine-month peak as investors sought riskier assets following upbeat data from Asia, given uncertainty over US budget talks and ebbing risks of an imminent Greek bankruptcy.

China may maintain its annual economic growth target at 7.5 percent next year, a signthat the new leadership headed by Xi Jinping will not tolerate a bigger slowdown.

Top Chinese economic officials will meet this month to map out policies for 2013 and may set the target that will be officially announced in March at the annual session of parliament.

A target of 7.5 percent would signal that Xi and Li Keqiang, set to succeed Wen Jiabao as premier, are prepared to expand fiscal and monetary easing should China's nascent economic recovery falter.

USD

Last week US equities closed the week in positive territory following comments by US President Barack Obama and Republican Party member John Boehner.

Their comments fuelled optimism for a near deal to ward off fiscal cliff issues. President Obama expressed himself saying he hoped that the agreement would be reached before Christmas.

John Boehner, speaker of the House of Representatives, also implied that common ground could be found.

GBP

Last week, a report confirmed Britain's economy exited a double-dip recession in the third quarter.

Despite of that news, the British pound fell for a third week versus the Euro, touching the lowest level in more than a month.

CAD

The Canadian dollar declined from its strongest level in almost three weeks against the USD amid concerns that a budget showdown in Washington would derail the economy of Canada's biggest trade partner - the US.

AUD

The Australian dollar remained weak amid speculation that growth in capital expenditure slowed, adding to the case for the country's Reserve Bank to cut interest rates.

New home sales surprised positively with actual figures for the month of October swinging into growth to +3.4% from a previous -3.7%.

The Central Bank will hold its rate decision next Tuesday and may cut its rate by 0.25% to 3% according to consensus; as the economy is slowing down.

NZD

The New Zealand dollar declined against most of its counterparts as building approvals dropped 1.5 percent in October from the previous month while no change had been expected.

Trade balance data eased to -NZD 718 million from the previous -NZD 775 million but the figure was much worse than what had been expected.

Later this week we have the RBNZ's rate decision meeting. Compared to forecasts, the Central Bank should keep its interest at 2.50%.

GOLD

Goldclosed last week at $1,713.52 and stays for now in its technical trading range between $1,662 and $1'800.

Ahead of us this week, the market should keep an eye on a number of interest rate decisions from the RBA, BOC, RBNZ, BOE and ECB.

The author is a Senior Market Analyst on RTFX Ltd Trading Floor.