U.S. Pending Home Sales Sharply Rose in October 2011

According to the last U.S. pending homes sales report the downward trend in this market has changed direction and there was a sharp increase in pending home sales during October 2011, and the October 2011 U.S. pending home sales index was also well above the October 2010 index.

The U.S. pending home sales index sharply rose by 10.4% in October 2011 compared with the September’s 2011 index, from 84.5 to 93.3. The October 2011 index was also 9.2 percent above the October 2010 index that stood back then at 85.5%.

 This index is a forward looking indicator and considers only the contracts signed and not closing.

This index might suggest a change in the direction of the U.S. house sales and a slight reason for cautious optimism in the real estate markets. The recent home sales reports including the new home sales were also positive and showed progress in the sales during October compared with previous month’s sales.

This positive news of a the sharp growth in pending home sales, might be among the factors to trade up the American stock markets and the recent rally of major commodities prices including crude  oil prices:

Current Nymex crude oil price, short term futures (December  2011 delivery) is traded up by 1.48%, at $101.27 per barrel as of 17:00*.

Current gold price, short term futures (December  2011 delivery) is traded at $ 1,752 per t oz. a $33.8 decrease or 1.97%, as of 16:52*.

Euros to USD is currently traded up at 1.3455 a 1.0378% increase as of 17:25

U.S Housing Starts Sharply Inclined by 9.3% in November

According to this month’s U.S. Census Bureau report of the new residential construction statistics for November 2011 there was a sharp gain in building permits and housing starts.

Privately owned Housing starts sharply inclined in November 2011 as the seasonally adjusted annual rate reached 685,000 compared with 627,000 in October 2011 – this is a 9.3% increase; furthermore, the annual rate for November 2011 was 24.3% above the rate in November 2010 of 551,000.

The seasonally adjusted annual rate of building permits for privately owned housing reached in November 681,000 – a 5.7% increase compared with October’s annual rate of 644,000. The November 2011 rate was also 20.7% above the rate in November 2010.

This news provides a clear positive signal about the progress of the U.S real estate market.

As I have sited in the past, there is a supposed relation, which is lagged by one day and negative, between housing starts and gold price; i.e. as Housing starts annual rates increases, gold price tend to decline the following day. That being said, the sharp gain the housing starts may be among the current factors to rally indexes and prices such as S&P500 index, crude oil prices and Euro/USD. Since gold and silver prices are strongly correlated to these abovementioned indexes in recent months, the news of the housing starts may indirectly pressure gold and silver prices to further rise.

Current gold price, short term futures (January 2012 delivery) is traded at $1,616 per t oz. a $20.2 increase as of 15:46*

Euros to US dollar exchange rate is currently traded up at 1.3114 a 0.8859% increase as of 16:05*.

Current Nymex crude oil price, short term futures (January 2012 delivery) is traded sharply up by 3.56% to $97.22 per barrel as of 16:00*.

Gold & Silver Prices – Daily Outlook December 29

Gold and silver prices started the last week of the year with moderate falls. Will this slow crawl down of precious metals prices continue this week? Currently, gold and silver are traded moderately down. Today, the KOF Economic Barometer report will be published.

Here is a market outlook of precious metals prices for today, December 28th:

Gold and Silver Prices –December Update

Gold price slightly declined on Monday by 0.65% to $1,595.5; silver price on the other hand slightly declined by 1.18% to $28.74. The chart below shows the development of gold and silver prices during December (normalized gold and silver prices to November 30th 2011). During December gold price declined by 8.8% and silver price by 12.4%.

The ratio between gold and silver prices slightly rose on Monday, December 27th and reached 55.51. During the month the ratio gained 4.0% as gold price has outperformed silver price.

U.S. Consumer Confidence Rose in December

According to the recent U.S. survey, the consumer confidence index inclined from 55.2 (1985=100) in November to 64.5 December. American consumers’ short term outlook in U.S. business conditions has also improved according to the report. This mews may have been among the factors to pull up energy prices and push down precious metals prices during yesterday’s trading as explained in the related post.

On Today’s Agenda

KOF Economic Barometer: this report offers a forecast of the Swiss economy in the months to come. In the recent press release, the report predicted that the Swiss Economy is headed towards stagnation in 2012;

Forex Trading / Gold & Silver Prices – December Update

The Euro to U.S Dollar slightly rose on Monday by 0.21% to reach 1.3072. Furthermore, other forex exchange rates such as the Australian dollar also moderately appreciated against the U.S dollar. If major currencies will change direction depreciate against the U.S. dollar, it may also affect gold and silver prices to further fall.

Current Gold and Silver Prices December 28th

The major precious metals are currently slightly declining in the European markets:

Current gold price per ounce short term future (January 2012 delivery) is traded at $1,588.70 per t oz. a $6.8 or 0.43% decrease as of 08:27*.

Natural Gas Prices Outlook for January 2012

Natural gas prices didn’t recover from the sharp falls of past months and during December they also declined. Furthermore, during December natural gas prices have unperformed not only compared with recent months’ prices, but also compared with previous years’ price levels. One of the reasons is probably the late arrival of the winter, but it’s only one aspect of the sharp drop in natural gas prices.

What is up ahead for U.S. natural gas prices during the first month of 2012? Let’s analyze the changes in the natural gas prices during December 2011 and provide an outlook for natural gas prices for January 2012:

Natural Gas Prices December 2011- Analysis

First, let’s examine what happened to natural gas prices (Henry Hub) during December: the Henry Hub natural gas spot and future prices declined during most of the month. Even though the Contango (future price premium over spot price) has shrunk during the month compared to previous months, the market remained in Contango. By the end of the month, as the short term futures (January delivery) will expire, the Contango is likely to close, as was the case in November.

To Read the full report you can purchase it now:

Oil Gains on Iran Threat May Not Hold, Gold Outlook Favors Losses

Talking Points
Crude Oil Gains from Iran Saber-Rattling Unlikely to Prove Lasting for Now
Gold Outlook Broadly Bearish on Waning Investment Demand, Profit-Taking
WTI Crude Oil (NY Close): $101.34 // +1.66 // +1.67%
Crude prices pushed higher yesterday after Iranian Vice President Mohammad-Reza Rahimi warned that international plans for crippling economic sanctions would be met with a total blockade of oil shipments through the Strait of Hormuz, the route carrying close to 40 percent of global seaborne supply. The threat is a familiar one however and its ability to continue driving prices over the near term appears limited until substantial escalation is apparent. In the meantime, larger sentiment trends are likely to hold sway, pointing the spotlight on the re-emergence of Eurozone debt crisis fears ahead of an Italian bond auction. The preliminary API set of weekly inventory figures is likewise on tap.
On the technical front, prices took out the top of a falling channel set from mid-November to challenge resistance at 101.80, the closing high for the second half of 2011. Continued gains from here target the November 17 session high at 103.35. The channel top, now at 99.72, has been recast as near-term support.

Daily Chart - Created Using FXCM Marketscope 2.0
Spot Gold (NY Close): $1593.22 // -13.72 // -0.85%
Declining investment demand – evident in sliding gold ETF holdings – continues to keep gold under pressure in the aftermath of December’s FOMC meeting where Ben Bernanke and company conspicuously shied away from QE3, weighing on the metal’s appeal as an inflation hedge. Seasonal profit-taking is likely a factor as well as gold approaches the conclusion of the third consecutive year of double-digit gains. The trajectory of the US Dollar against the backdrop of returning European debt crisis fears may amplify downward pressure if safe-haven demand pushes the greenback higher. Needless to say, a risk-on scenario is likely to offset bearish momentum at least over the near term.
Turning to the chart setup, prices are drifting lower after putting in a bearish Shooting Star candlestick below support-turned-resistance at the bottom of a falling channel set from early November. The bears aim to challenge long-term support at a trend line dating back to late October 2008, now at 1567.29. Channel resistance is now at 1611.84.

Daily Chart - Created Using FXCM Marketscope 2.0
Spot Silver (NY Close): $28.69 // -0.42 // -1.45%
Little has changed from what we observed last week, with prices locked in a narrow range between 28.41 and 29.79. The fundamental catalysts driving price action largely mirror those of gold: eroding demand for an inflation hedge presents a headwind likely to develop over the coming months but year-end flows and even thinner-than-usual liquidity complicate trend development. Near-term, the return of Eurozone sovereign risk fears and their implications for the US Dollar also merit attention. A break higher exposes rising trend line support-turned-resistance at 32.07 while a push to the downside targets 26.05.

Daily Chart - Created Using FXCM Marketscope 2.0

U.S. New Home Sales Slightly Rose in November 2011

Today, the U.S. Census Bureau updated on the number of new homes sales in the U.S during November 2011: new homes sales slightly rose again compared to October.

According to the recent report, during November 2011 the annual rate of number of U.S new home sales reached 315,000 (seasonally adjusted); this figure is 1.6 percent above the revised annual rate in October 2011 of 310,000 sales, and it was 9.8% above the annual rate in November 2010.

The median sales price of new dwellings sold in November 2011 reached $214,100.

This news demonstrates the ongoing slow recovery of the U.S. home market, even if the growth rate is very modest.

This report might raise some light optimism in the financial markets and help rally the American stock markets, which are currently traded slightly up. Furthermore, this news may also help push commodities prices mainly crude oil prices to further rise.

Current gold price, short term futures (January 2012 delivery) is traded at $1,606.40 per t oz. a $4.2 decrease or 0.26%, as of 17:54*.

Nymex (WTI) crude oil price, short term futures (January 2012 delivery) is slightly rising by 0.61% to $100.14 per barrel as of 17:57*.

Euros to USD exchange rate is currently traded slightly up at 1.3052 a  0.0168% increase as of 18:06*.

U.S GDP Q3 2011 was Revised Down to 1.8%

The bureau of economic analysis published today its third and final estimate of the growth rate of the U.S. GDP in the third quarter of 2011:

According to the report, the growth rate of the real U.S GDP 2011 in the third quarter of 2011 was slightly revised down again from 2.0% in the initial estimate to 1.8% growth rate in the recent estimate; in the previous quarter (Q2 2011) the real U.S GDP grew by only 1.3%; thus the growth rate in the Q3 2011 was moderately higher than in the previous quarter and was also the best performing quarter so far in 2011.

That being said, the growth rate for Q3 2011 was revised down for the second time and ended up much lower than the original first estimate of a growth rate of 2.5%; this revision may adversely affect the American stock markets and could also influence commodities traders to trade down major commodities such as crude oil, gold and silver.

The chart below shows the development of the growth rate of the real U.S. GDP (Q-2Q) during the past few years.

Currently, the American stock markets along with the major commodities prices such as crude oil prices are rising; on the other hand, gold and silver prices are moderately falling:
Nymex (WTI) crude oil price, short term future (January 2012 delivery) is traded up by 0.99%, at $99.65 per barrel as of 16:11*.

Gold price, short term futures (January 2012 delivery) is traded at $1,609.00 per t oz. a $4.6 decrease or 0.29%, as of 15:00*.
Euros to USD is currently traded slightly down at 1.3037 a 0.08% decrease as of 15:15*.

Gold and Silver Prices Weekly Outlook for December 26-30

Here is a weekly recap for gold and silver prices for the week of December 26th to the December 30th including changes in prices, chart analysis and the main events and news that may have affected gold and silver prices to moderate change during last week including the U.S. GDP for third quarter, the rise in the U.S. housing starts and U.S new home sales, and the decline in U.S initial unemployment claims .
The video link below also includes a quick forecast for gold and silver prices for the last week of the year the week December 26th to the December 30th rd including the main reports and events that may affect gold and silver prices. Some of these reports and events include: U.S. pending home sales report, Japan’s rate decision and monetary development of the M1, M3 and private loans in the Euro Area during recent month, China’s Manufacturing PMI,  U.S. unemployment claims weekly report(just to name a few).

Guest Commentary: Gold & Silver Daily Outlook 12.28.2011

Gold and silver started the last week of the year with moderate falls. Will this slow crawl down of precious metals continue this week? Today, the KOF Economic Barometer report will be published.
Gold slightly declined on Monday by 0.65% to $1,595.5; silver on the other hand slightly declined by 1.18% to $28.74. The chart below shows the development of gold and silver during December (normalized gold and silver prices to November 30th 2011). During December gold declined by 8.8% and silver by 12.4%.

The Euro/USD slightly rose on Monday by 0.21% to reach 1.3072. Furthermore, other exchange rates also moderately appreciated against the USD. If major currencies will change direction and depreciate against the USD, it may also affect gold and silver to further decline.
The ratio between gold and silver slightly rose on Monday, December 27th and reached 55.51. During the month the ratio gained 4.0% as gold has outperformed silver.

U.S. Consumer Confidence Rose in December
According to the recent U.S. survey, the consumer confidence index inclined from 55.2 (1985=100) in November to 64.5 December. American consumers' short term outlook in U.S. business conditions has also improved according to the report. This mews may have been among the factors to pull up energy and push down precious metals during yesterday's trading as explained in the related post.
On Today's Agenda
KOF Economic Barometer: this report offers a forecast of the Swiss economy in the months to come. In the recent press release, the report predicted that the Swiss Economy is headed towards stagnation in 2012;
Gold and Silver Outlook:
Gold and silver moderately declined during recent weeks: gold price has declined during the past four business days, each time by less than one percent drop. Despite the rally in oil, and Forex markets (such as CAD), gold and silver continued to decline. I speculate this slow crawl down of precious metals might continue throughout the remainder of the week, unless there will be a breaking news that could stir up the markets such as new development about the European debt crisis or the economic progress of the U.S.
For further reading:
Gold and Silver Prices Weekly Outlook for December 26-30
Get the recent gold and silver outlook report for free! Just sign up to TradingNRG's newsletter.

Euro Strength To Be Short-Lived, Sterling Eyes 1.5400

alking Points
Euro: ECB Liquidity Props Up Italy Bond Auction
British Pound: Carves Out Near-Term Top, Broad Range Still In Play
U.S. Dollar: Weakness To Be Short-Lived As Risk Sentiment Falters
Euro:ECB Liquidity Props Up Italy Bond Auction
The Euro advanced to 1.3079 following the bond auction in Italy, and the single currency may continue to gain ground ahead of the EUR 8.5B debt sale scheduled for Thursday as investor confidence improves. Indeed, Italy sold EUR 9B of six-month bills yielding 3.251%, which compares to the 6.504% offered back in the November, and easing finance costs may prop up the single currency over the next 24-hours of trading as it dampens the risk for contagion. It seems as though the extraordinary efforts taken by the European Central Bank has helped to calm market jitters, but the Governing Council may have to do more in 2012 as the fundamental outlook for the euro-area remains weak.
ECB board member Jens Weidmann said that the three-year liquidity program was ‘unusual’ but ‘necessary’ according to an interview with a German newspaper, and argued against ‘state financing with the central bank printing press’ as the central bank maintains its one and only mandate to ensure price stability. As the ECB continues to talk down speculation for a large-scale asset purchase program, we expect central bank President Mario Draghi to push the benchmark interest rate below 1.00% in the following year, but the Governing Council may have little choice but to further expand its nonstandard measures as the region braces for a ‘mild recession.’ As the EUR/USD maintains the downward trend from the end of October, the recent strength in the single currency is likely to be short-lived, and the exchange rate should continue to push lower over the near-term as European policy makers struggle to draw up a credible solution to address the sovereign debt crisis.
British Pound: Carves Out Near-Term Top, Broad Range Still In Play
The British Pound gave back the overnight advance to 1.5691 to maintain the narrow range carried over from the previous week, and the GBP/USD may continue to trend sideways ahead of the New Year as the fundamental outlook for the U.K. remains clouded with high uncertainty. As the pound-dollar struggles to trade above the 38.2% Fibonacci retracement from the 2009 low to high around 1.5680-1.5700, the pair may have put in a near-term top this week, and we may see the pair make another run at 1.5400 as the exchange rate remains stuck within a broader range. However, as the Bank of England shows an increased willingness to expand its asset purchase program beyond the GBP 275B target, expectations for additional monetary support instills a bearish outlook for the British Pound, and the sterling may trade heavy throughout the first-half of 2012 as the slowing recovery in Britain dampens the appeal of the U.K. currency.
U.S. Dollar: Weakness To Be Short-Lived As Risk Sentiment Falters
The greenback struggled to hold its ground on Wednesday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) slipping to a low of 9,929, but we may see the reserve currency regain its footing during the North American trade as the rebound in market sentiment tapers. As the U.S. equity market opens lower, it seems as though market participants are scaling back on risk-taking behavior, and we may see the reserve currency extend the advance from earlier this month as it continues to benefit from safe-haven flows. As the economic docket remains fairly light over the next 24-hours of trading, risk trends should dictate price action across the financial markets, and the drop in risk appetite could spark another flight to safety as the outlook for the global economy remains clouded with high uncertainty.
--- Written by David Song, Currency Analyst
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong
To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.
Will the EUR/USD Retrace The Advance From Earlier This Year? Join us in the Forum
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USD Correction On Tap, British Pound To Hold Range Ahead Of 2012

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) is 0.73 percent higher from the open after moving 135 percent of its average true range, and the shift in trader sentiment should prop up the greenback over the next 24-hours of trade as it benefits from safe-haven flows. As market participants scale back their appetite for risk, the flight to safety should gather pace over the remainder of the week, and bullish sentiment underlining the reserve currency should carry into 2012 as the fundamental outlook for the world’s largest economy improves. However, as the rebound from 9,929 remains heavily overbought, we may see a short-term correction during the overnight session, and the index may fall back towards 9,980 before it continues to move higher.

The daily chart continues to generate a mixed view for the USD as we closely watch the bearish divergence in the relative strength index, but its seems as though the 61.8 percent Fibonacci retracement will act as near-term support as the index carves out a higher low in December. The upward trend in the moving averages points to more dollar strength over the near-term, and the USD should make another run at the 78.6 percent Fib (10,117) as we expect to see a higher high in the index. For 2012, a major driving force for the dollar will certainly be monetary policy as the Fed carries its wait-and-see approach into the following year, and we may see the FOMC endorse a neutral policy stance in the coming months as the economic recovery in the U.S. gradually gathers pace. As the more robust recovery limits the scope for another round of quantitative easing, the central bank should continue to carry out ‘Operation Twist’ next year, and we may see Fed Chairman Ben Bernanke soften his dovish tone for monetary policy as growth and inflation picks up.

All four components weakened against the greenback, led by a 1.28 percent decline in the British Pound, and the sterling is likely to face additional headwinds over the near-term as the U.K. teeters on the brink of a recession. In turn, we expect the Bank of England to expand its asset purchase program beyond the GBP 275B target, but the central bank may take aggressive steps to shore up the ailing economy as policy makers see an increased risk of undershooting the 2 percent target for inflation. However, as the GBP/USD maintains the broad range from the end of November, the exchange rate looks as though it will continue to trend sideways ahead of the New Year, and we may see the rebound from 1.5460 gather pace over the next 24-hours of trading as the pair remains oversold.
--- Written by David Song, Currency Analyst

First Day of Italian Bond Auction Fails to Move Market forex market

Italian bonds gain strength, European stocks up on the news
Yen has been finding some bids, perhaps influenced by US Treasury
Oil stands out as relative outperformer aided by geopolitics
Obama asks for more borrowing power
Economic calendar extremely light today
For any of you trading the markets this week, things have picked up a tad into Wednesday, with volume getting to as about as high as it will get until after the New Year in this very light holiday trade. The key focus for today has been the Italian bond auction which will be going on into tomorrow with the more important results being released tomorrow. The auction due will total up to Eur20B and is the first big test of the European Central Bank’s latest three year LTRO liquidity program. To this point however, it seems as though the newly modified central bank policy tool has not done anything major to bolster sentiment. But the Italian bond auction does take on added meaning given the country’s use as a barometer for the broader European debt crisis. Today’s auction is the less important of the two, with the longer term debt due on Thursday.
undoubtedly be the Italian bond auction results, with the economic calendar basically empty.
Moving on, from an FX standpoint, we have been seeing some mild risk off price action, with currencies tracking lower against the safe havens. More interesting is the price action in the Yen, with USD/JPY slowly moving lower and away from the 78.00 area. Also of note has been the price action in oil, with the commodity very well bid over the past week and standing out as a relative outperformer as the price rallies back over $100. Iran's threat to block oil shipments from moving through the Strait of Hormuz if foreign sanctions are imposed have certainly factored into the supported oil market.
Elsewhere, the US Treasury has released its semi-annual FX report, and while there was no specific mention of China as a currency manipulator, this did not dissuade the Treasury from coming down hard on Japan’s recent intervention actions. The report said that it “did not support” Japan’s FX market interventions in August and October given the fact that FX movements during that period were orderly. The report contrasted the interventions from August and October to the earlier post earthquake intervention from March where the official Japanese action was more justified. However, a Japanese government official has since been on the wires saying that the US criticism will do nothing to change the country’s stance on FX. Also, President Obama today announced he will ask Congress for an extra $1.2tn borrowing authority this week. This would raise the Federal debt limit to $16.4tn & therefore avoid the need to ask for more increases before the 2012 elections are held.
Foreign Investment in US Equities
While on the surface, the recommendation appears to be non-currency specific, we view this as an extremely attractive opportunity for a portfolio hedge in 2012 and potential arbitrage strategy. Currencies have been broadly outperforming against the US Dollar in recent years and it finally appears as though this trend could be on the verge of some form of a reversal back in favor of the buck. However, long USD positions have also been quite risky and exposure to the Greenback might bring with it some unwelcome stress. As such, our recommendation is foreign investment in US equities. What does this mean?
Here is how we see this playing out. Should current correlations stand, if US equities are to head higher, then the investor will benefit from the US equity return, but at the same time, likely have his/her investment offset by the sell-off in the US Dollar and appreciation in his/her local currency on the resurgence in risk appetite and outflow from the safe-haven US Dollar. If on the other hand US equities head lower, then the risk off market environment will allow the investor to offset his/her loss in US stocks through the appreciation in the US Dollar on its safe-haven flows (remember – the investor in invested in US equities and thereby has USD exposure).
So if this is the case, then where is the benefit in this trade, and why even do it? Well, what if we see a break down in familiar correlations where the US equity market rallies and the US Dollar also rallies at the same time? What if we see a situation where US equities and the US Dollar become positively correlated? In this scenario, the investor stands to benefit a great deal and will not only make money from his investment in US equities, but will also enhance his/her returns on the appreciation in the US Dollar.
The global recession appears to be moving in phases, and with the markets now dealing with phase two of the crisis in Europe, we can start to anticipate the transition to phase three, where we believe that China, the commodity bloc economies and emerging markets will all be exposed. At the same time, we see a first in and first out type of situation, with the US economy the first to emerge from the global recession which should translate into a more upbeat outlook on low valuation US equities and the US Dollar as well, on a narrowing of yield differentials back in favor of the Greenback as the Fed begins to signal a reversal of ultra accommodative monetary policy.
Relative performance versus the USD on Friday (as of 10:00GMT)
NZD +0.57%
AUD +0.31%
CAD +0.29%
JPY +0.23%
CHF +0.17%
EUR 0.00%
GBP -0.03%

US Dollar Stuck at Familiar Levels in Thin Holiday Trade

THE TAKEAWAY – The US Dollar is treading water near familiar technical levels as financial markets drift sideways in thin holiday trade. Gold is nearing key support.
S&P 500 – Prices continue to flirt with horizontal support-turned-resistance at 1265.30 having taken out falling trend line resistance set from the October 27 swing high. A break higher exposes 1295.10. A dip back below the trend line (now acting as minor support) opens the door for a move to 1224.40 as the first significant downside barrier.

Daily Chart - Created Using FXCM Marketscope 2.0
CRUDE OIL – Prices are testing the top of a falling channel set from the November 17 high, now at the 100.00 figure, with a break higher targeting 101.18. Near-term support remains at 97.89. A candle in Star position hints preliminary signs of a bearish reversal may be emerging but confirmation is needed before anything can be said with confidence.

Daily Chart - Created Using FXCM Marketscope 2.0
GOLD – Prices are drifting lower after putting in a bearish Shooting Star candlestick below support-turned-resistance at the bottom of a falling channel set from early November. The bears now aim to challenge long-term support at a trend line dating back to late October 2008, now at 1570.70. Channel resistance is now at 1613.24.

Daily Chart - Created Using FXCM Marketscope 2.0
US DOLLAR – Prices are treading water below resistance at 9982, the 14.6% Fibonacci retracement level. Support remains at 9925, the 23.6% Fib, and finds reinforcement in a rising trend line set from early November. A breakdown exposes 9823 while a push above immediate resistance targets the year-to-date closing high at 10081.

Daily Chart - Created Using FXCM Marketscope 2.0
--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

British Pound Top Performer in Thin Markets

European Session Summary
Trading conditions remained especially thin on Tuesday, as English speaking countries, mainly Canada and the United Kingdom, celebrated national holidays. Typically, the weeks leading up to and after Christmas are slow, as many trading desks around the world are closed. Higher yielding currencies had underperformed headed into the North American trading session, while the Euro was softer as well.
Notably, the Italian 10-year bond traded back above the 7 percent yield, a rather disconcerting development as it appears banks, at least those active in the market, have taken the European Central Bank’s long-term refinancing operation as an opportunity to pad their balance sheets rather than soak up increasingly toxic sovereign debt. But, given the circumstances, who can blame the banks? New rules require banks to raise capital by June 2012, and instead of trying to raise capital and convince market participants of their solvency, borrowing at 1 percent in unlimited amounts is rather appealing.
The ECB’s LTRO helps liquidity, but like the swap lines the Federal Reserve initiated on November 30, it fails to address the issue of solvency.
Dow Jones FXCM Dollar Index: December 27, 2011

Charts created using Strategy Trader– Prepared by Christopher Vecchio
Overall, the U.S. Dollar is trading slightly lower across the board, with the U.S. Dollar Index (Ticker: USDOLLAR) falling slightly in premarket hours. While the Australian Dollar and the Euro were softer against the Greenback, the British Pound, as the best performing currency on the day, sank the index. Later today, with U.S. consumer confidence for December due out, a bump in volatility is expected, though any disruption of the sideways trend is unlikely to occur until next week.
24-Hour Price Action

Key Levels: 14:25 GMT

Thus far, on Tuesday, the Dow Jones FXCM Dollar Index is slightly lower, trading at 9954.10, at the time this report was written, after opening at 9967.87. The index has traded mostly lower, with the high at 9973.67 and the low at 9946.90.

S&P 500 Chart Setup Warns of Weakness, Hinting US Dollar to Rise

THE TAKEAWAY – The US Dollar may rise amid returning safe-haven demand as S&P 500 technical positioning warns that a double top may be emerging.
S&P 500 – Prices put in a Doji candlestick below resistance at 1272.60, the December 8 swing high, hinting bullish momentum is ebbing and threatening a reversal lower ahead. Initial support lines up at 1253.80, a former resistance at a falling trend line set from the October 27 high. A topside breakout targets 1292.90.

Daily Chart - Created Using FXCM Marketscope 2.0
CRUDE OIL – Prices took out the top of a falling channel set from mid-November to challenge resistance at 101.80, the closing high for the second half of 2011. Continued gains from here target the November 17 session high at 103.35. The channel top, now at 99.72, has been recast as near-term support.

Daily Chart - Created Using FXCM Marketscope 2.0
GOLD – Unchanged from yesterday. Prices are drifting lower after putting in a bearish Shooting Star candlestick below support-turned-resistance at the bottom of a falling channel set from early November. The bears aim to challenge long-term support at a trend line dating back to late October 2008, now at 1567.29. Channel resistance is now at 1611.84.

Daily Chart - Created Using FXCM Marketscope 2.0
US DOLLAR – Unchanged from yesterday. Prices are treading water below resistance at 9982, the 14.6% Fibonacci retracement level. Support remains at 9925, the 23.6% Fib, and finds reinforcement in a rising trend line set from early November. A breakdown exposes 9823 while a push above immediate resistance targets the year-to-date closing high at 10081.

Daily Chart - Created Using FXCM Marketscope 2.0
--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com
To contact Ilya, e-mail ispivak@dailyfx.com. Follow me on Twitter at @IlyaSpivak
To be added to Ilya's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com

Light Trading Continues; Kiwi Tops Majors, U.S. Dollar Lags

European Session Summary

Trading conditions remained thin on Wednesday, Typically, the weeks leading up to and after Christmas are slow, as many trading desks around the world are closed. Higher yielding currencies had outperformed headed into the North American trading session, but the Euro continued to lag.

The short-term Italian bond auction went off without a hitch this morning, actually surprising most market participants to the upside. With the rate at which to borrow for 179-days cut in half, it appears that a combination of heavy European Central Bank bond buying and participation by banks helped bring down the short-term yield. Still, the key auctions to watch for take place in the medium-term portion of the yield curve, most notably the 10-year.

Charts created using Strategy Trader– Prepared by Christopher Vecchio

On the news, the commodity currency block received additional bids and pushed towards session highs ahead of the New York session. The New Zealand Dollar was the top performer, up just over 0.5 percent against the U.S. Dollar, at the time this report was written. Similarly, the Canadian Dollar was particularly strong, with more saber rattling out of Iran today.

It should be noted that as this report was headed to publishing, there was odd price action observed in the European currencies, particularly the British Pound. Given thin trading conditions, any large moves should be taken with a grain of salt, though if a sell-off gathers pace, it will demand greater attention.

24-Hour Price Action

Key Levels: 13:55 GMT

Thus far, on Wednesday, the Dow Jones FXCM Dollar Index is slightly higher, trading at 9970.26, at the time this report was written, after opening at 9953.70. The index has traded mostly higher, with the high at 9970.26 and the low at 9930.53.

--- Written by Christopher Vecchio, Currency Analyst

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