US OPEN - Volumes have been less than impressive overnight and are expected to get even thinner as we head into the US session of trade today on the back of the lightened holiday trade. We ended the previous week with the prospect for some short-term reversals across the board as risk appetite became more favorable and equities showed some promise. As such, we saw an outflow of the flight to safety trades in the form of the USD and Yen with both currencies selling off as investors looked to shift back into riskier and higher yielding currencies. On Monday however, this positive sentiment and risk appetite appears to have waned somewhat with EUR/USD, CHF/USD, GBP/USD and USD/JPY all falling back. Commodity currencies are also lower on the day driven on similar global macro fundamentals while also weighed down by lower gold and oil prices. Some of the specific drivers of price action come from another downgrade to an EU country credit rating with S&P slashing Spain's sovereign credit rating just one week after a similar cut to Greece's credit rating. Also seen striking some nerves has been an article titled “Help Ireland or it will Exit the Euro” from a leading Irish economist and former central banker who has imposed this threat unless Europe's big powers do more to aid Ireland's beleaguered economy. In the UK, any positive reaction from the latest government efforts to aid the banking system seems to have worn off with the release of RBS's biggest corporate loss in UK history.
EUR/USD has now given back over 50% of the move off of Thursday's 1.3025 low but is expected to find some support ahead of 1.3110, Friday's low. In the interim, key levels to watch above and below come in by 1.3390 and 1.3025 with only a break back under 1.3025 ultimately threatening the current recovery structure. USD/JPY setbacks have been well supported and the current price action looks to be more of a consolidation following Friday's gains rather than any threat of a material pullback. A short-term base looks to be in place by Thursday's 88.45 low and a fresh daily higher low is now being sought out above 89.75 ahead of the next upside extension. A break above 91.65 should accelerate gains. GBP/USD has now taken out Friday's higher low at 1.4625 and looks to be eying a retest of last Tuesday's 1.4470 low which guards against the critical trend lows at 1.4350 from December 31. However, the daily ATR for the pair stands at 320 pips which would imply that additional setbacks should be limited today. Aggressive intraday players might want to look to buy back into the current dip below 1.4600. USD/CHF continues to trade in sideways fashion with price action being defined between 1.1095 and 1.1290. A move above or below the latter would be required for clear directional bias.
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