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Forex: EUR/USD extends drop after US data

The EUR/USD is now reacting to the disappointing release of US factory orders. Not only it came in at 1.8% (consensus of 2.2%) in December, but November data was revised lower, from 0.0% to -0.3%. The EUR/USD is weakening further, having threatening an extended drop below 1.3550.

The market is also re-positioning itself after the extended rally seen recently, to as high as 1.3711, to get ready for the ECB monetary policy announcement on Thursday. "While the ECB is well expected to remain on hold, small expectations have developed that Draghi will make efforts to talk down the EUR", wrote TD Securities analysts. "That notion could build and continue to weigh on the single currency ahead of the meeting, although we suspect they are overblown", they added.

"EUR/USD is in the midst of a pullback after breaking over strong resistance at 1.3487 (see also psychological resistance at 1.3500. Hourly supports can be found at 1.3541 (31/01/2013 low) and 1.3482 (30/01/2013 low)", wrote MIG Bank analyst Bijoy Kar, seeing scope for a move towards 1.3750 initially and then potentially 1.4000.

Forex Flash: GBP to weaken further – Rabobank

The sterling would face renewed pressure this week, as the BoE MPC would hold its monthly gathering. Although market consensus expects the lending benchmark and the Gilts purchases to remain...
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Forex Flash: Commodities becoming attractive – Merrill Lynch

As cross-asset correlations have started to normalize, Merrill Lynch analysts believe it is worthwhile noting that the tables are starting to turn for the asset class: “For starters, equity correlations with commodities have declined meaningfully in the last six months and are now back near pre-2008 levels in many cases. Similarly, both High Yield and Emerging Market bond returns are no longer highly correlated to commodities”, they wrote, adding that “as global financial markets have started to normalize, the portfolio diversification benefits of commodities are coming back”.
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