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Crude oil prices appear firmly anchored to broad-based sentiment trends with the correlation between the WTI contract and the S&P 500 – a proxy for overall risk appetite – now at the strongest in over two months (on 20-day percent change studies). This suggests the path of least resistance favors weakness as futures tracking the equity benchmark slide over 0.5 percent in European trade. Crude oil prices appear firmly anchored to broad-based sentiment trends with the correlation between the WTI contract and the S&P 500 – a proxy for overall risk appetite – now at the strongest in over two months (on 20-day percent change studies). This suggests the path of least resistance favors weakness as futures tracking the equity benchmark slide over 0.5 percent in European trade. Markets are turning jittery in anticipation of a French bond auction amid returning Eurozone debt crisis fears. Paris will sell €8 billion in 2021-2041 paper, with the outcome particularly interesting given rating agencies’ threats to downgrade the country’s AAA credit score (which would consequently compromise the AAA score assigned to the EFSF bailout fund) over recent months. On the economic data front, all eyes are on the US ADP Employment reading as traders prepare for Friday’s all-important official jobs report. Expectations call for an increase of 178,000 in December compared with 206,000 recorded in the preceding month, alluding to a slowdown in hiring.The non-manufacturing component of the ISM survey may be a mitigating factor however, with forecastssuggesting service sector growth accelerated for the first in four months. Weekly inventory figures are also on tap. On the technical front, prices put in a bearish Hanging Man candlestick below resistance at 103.35, the November 17 high, warning a double top may be in the works. Near-term support lines up at 101.28. Alternatively, a break higher exposes 106.05.

The US Dollar (ticker: USDollar) pushed higher against its leading counterparts in overnight trade as Asian stock exchanges fell, stocking demand for the go-to safe haven currency. The sentiment-linkedAustralian Dollar bore the brunt of the selloff – down as much as percent against its US namesake – after the AiG Performance of Service Index printed below the 50 “boom-bust” level, showing the non-manufacturing sector contracted for a third consecutive month, while the Trade Balance surplus narrowed to the smallest in 9 months as exports to China slumped 15.8 percent. The East Asian giant is Australia’s largest trading partner. Looking ahead, a quiet economic calendar keeps the focus on Eurozone debt crisis issues, with the spotlight turning to a Frenchbond auction. The currency bloc’s second-largest economy is set to sell 2021-2041 paper, with traders keeping a close eye on average yield levels and bid-to-cover readings – a measure of demand – to get a sense of sovereign solvency fears in the region as Eurozone countries face the need to refinance a whopping €157 billion in maturing debtjust in the first three months 2012. The 3-month Euribor-OIS spread, a measure of liquidity risk, rose for the first time in a week yesterday while the ECB reported that banks parked a record €453 billion in its deposit facility yesterday. This means banks remain jittery and reluctant to funnel any of the nearly €500 billion they borrowed via the central bank’s 3-year LTRO into the real economy. On balance, this points to renewed deterioration in credit markets and may produce a disappointing outcome at the debt sale, weighing on the Euro. On the sentiment front, S&P 500 stock index futures are trading meaningfully lower in late Asian hours, hinting at the return of risk aversion that offers a lifeline to US Dollar at the expense of stocks-correlated currencies. The US ADP Employment gauge will enter into the picture in the afternoon and may stoke volatility as traders position for Friday’s all-important official jobs report. Expectations call for an increase of 178,000 in December compared with 206,000 recorded in the preceding month, alluding to a slowdown in hiring. Interestingly, forecasts for official overall nonfarm and private-sector payrolls paint the opposite picture, showing hiring will accelerate.

Price action this week unfolded mostly as expected, considering the preceding week’s theatrics. The post-Euro-zone summit reaction was weak, ultimately leading to a sell-off of higher yielding currencies and risk-correlated assets, as any solutions set forth proved to be deemed inadequate by market participants. Of the short falls the summit yielded, perhaps the most pertinent (lack of) developments were that no European lender of last resort stepped forward, while any promises of fiscal integration appears to be just more empty words. For now, a disorderly Euro-zone breakup can be ruled out of the question, but with Eurobonds off the table for the time being, and the European Central Bank choosing not to print Euros to save the periphery, the downward trajectory of the crisis remains – although the descent may not be so steep now. With that said, in terms of scheduled event risk for the coming week, there’s not much by way of significant data due that would alter the current landscape nor the foreseeable future’s given broadly thinner liquidity conditions. Two central banks’ minutes are due this week, which should generate additional price action given the results of the two meetings: the Reserve Bank of Australia cut rates for the second consecutive month; and the Bank of England has been considering implementing further easing measures, the scope of which should have been discussed at the previous meeting. Also, growth figures for New Zealand then Britain will be released, with U.S. durable goods orders for November due to round out the week. AUD Reserve Bank's Board August Minutes: December 20 – 00:30 GMT At its meeting on December 6, the Board of the Reserve Bank of Australia voted to lower the cash rate from 4.50 percent to 4.25. This move was widely anticipated by markets, and the rhetoric issued thereafter falls broadly in line with what was expected. The central bank cut its forecast for economic growth and called for softer inflationary pressures over the next two years as financial turmoil rooted in Europe and the United States is likely to weigh on global growth prospects going forward. Additionally, slowed emerging market growth, most notably by China, also weighed on Australian policymakers’ outlook. Given these observations, it appears that the RBA is taking an increasingly dovish outlook. Should this position be emphasized in the bank’s minutes, then a weaker Australian Dollar is expected thereafter. GBP Bank of England Minutes: December 21 – 09:30 GMT On December 8, the Bank of England voted to maintain the key interest rate at 0.5 percent. Additionally, the Monetary Policy Committee held the target of its bond program at £275 billion. The country’s inflation rate jumped to 5.2 percentin September, although the rate has since subsided to 4.8 percent in November (this data was not available at the time of the rate decision). Regardless, the Bank of England looks unlikely to raise rates despite price pressures persisting at more than double its target of 2 percent.Despite the high rate, policymakers at the Bank of England agree that the economic outlook is not stable enough to withstand higher interest rates. The minutes of the meeting will be published on December 21 and will include highlights of the board meeting as well as forecasts of future growth for the country. The key information will be the Bank of England’s decision in regards to expanding its asset purchase program. NZD New Zealand Gross Domestic Product (YoY) (3Q): December 21 – 21:45 GMT According to a Bloomberg News survey, the New Zealand economy is expected to have experienced accelerated growth in the third quarter, with the forecast print coming in at 2.2 percent from 1.5 percent in the second quarter, on a yearly basis. On a quarter-by-quarter gauge, growth is forecasted to have jumped to 0.6 percent from 0.1 percentData released the past few weeks hasn’t been necessarily supportive of such a strong growth reading, with the unemployment rate rising surprisingly in the third quarter. Inflation fell at a faster-than-expected rate in the third quarter, while export figures showed slight contraction from July through September. In an otherwise quiet week for the Kiwi, the GDP print offers the greatest opportunity for volatility in the NZD/USD. Join a DailyFX analyst for live coverage of event! GBP United Kingdom Gross Domestic Product (YoY) (3Q F): December 22 – 09:30 GMT Although this is the third and final release of the United Kingdom’s third quarter growth figure, it remains a key event amid an otherwise quiet week. Growth is expected to be confirmed at 0.5 percent quarter-over-quarter and 0.5 percent year-over-year. The British economy is facing numerous headwinds, not limited to the potential fallout of the Euro-zone crisis. Industrial and manufacturing production has been on a steady decline over the better part of the year, while the combination of high inflation and high unemployment has created a stagflating environment. Another subdued growth reading increases the likelihood of further easing by the Bank of England, weighing on the Sterling in the coming periods. USD United States Durable Goods Orders (NOV): December 23 – 13:30 GMT Although the U.S. GDP revision earlier in the weekis important, considering it is unexpected to show any change, the durable goods figure for November has the potential to be more market moving. The early revision for the October figure shows that orders did not contract as much as previously thought, now at -0.5 percent versus the -0.7 percent figure originally reported. Still, that has had little influence on the forecast for November. According to a Bloomberg News survey, orders are expected to have jumped by 2.0 percent; July was the last time there was growth of 2.0 percent or greater. As a proxy to consumer spending on goods with a lifetime of three years or more, the report is often seen as a gauge of future manufacturing production. While a strong reading will likely stir risk-appetite and a U.S. Dollar sell-off in the near-term, another ‘positive’ data release weighs heavy on further quantitative easing measures by the Federal Reserve.

The EURGBP has dropped below channel support and the January low at 8284. I wrote last week that “given the 5th wave interpretation, refrain from getting bearish on a new low. Rather, expect a countertrend rally to develop – resistance would be 8420.” A look at the short term pattern does reveal additional bearish potential but be picky with entries here. Resistance is 8290-8325 and risk on shorts can be kept to 8375. Downside levels of interest are 8220 (short term Fibonacci extension), 8140 (August 2010 low) and 8066 (July 2010 low). The drop under 12925 strongly suggests that a 12 month triangle is complete. One would expect an extended decline from a consolidation pattern that consumed so much time.” Daily RSI is just below the level that produced the December 2010 bottom and the risk of at least a short term bounce increases with each tick lower. Still, the next objective is not until the 161.8% extension of the decline from 14087-13110, which is at 12230. The first day of the month high (12695) can be used as risk on shorts now and a bounce would be a candidate to short against that level. Resistance is now 12545/65 and 12630. I am showing a longer term picture to highlight that daily RSI is at a level that could produce a short term bounce but more importantly to highlight that any bounces should be sold. Again, “the EURCAD break below 13400 and trendline that extends off of the 2010 and 2011 lows gives scope to an extended decline towards the 2011 and 2010 lows at 12777 and 12447.” Resistance is 13080-13120 and risk on shorts can be moved to 13235. Trading above there would shift focus to resistance at 13275, and 13360/75.

The dollar pulled further away from the key Fibonacci support level we have continued to cite since the start of the year at 9850. The index breached the 61.8% Fibonacci extension taken from the August 1st and October 27th troughs at 9950 before losing steam just ahead of the psychological 10,000 level. The RSI reversal noted yesterday has continued to support our bias with the oscillator crossing back above the 50-level as the slope steepens further The greenback is markedly higher at the close of North American trade with the Dow Jones FXCM Dollar Index (Ticker: USDollar) advancing 0.92% on the session. The gains come on the back of another lackluster performance in US equities which spent much of the session struggling to pare early losses carried over from a more substantial sell-off in European markets. Helping support stocks was a much stronger than expected print on the ADP employment report which showed the US created 325K jobs in December. The data nearly doubled consensus estimates which had called for a print of just 178K. By the close of trade, the S&P and the NASDAQ were higher by 0.29% and 0.81% respectively, while the Dow was slightly weaker, off by just 0.02% on the session The greenback advanced against all four component currencies highlighted by a 1.16% advance against the euro which moved nearly 147% of its daily average true range. Reports out of Europe continue to suggest that the Germans remain steadfast in the opposition to the expansion of the bail-out fund with yields on French debt continuing to rise despite decent demand at a bond auction earlier today. The euro fell to its lowest levels since September 2010 as ongoing concerns about the deepening debt crisis weighed on demand for the single currency. It comes as no surprise that the Japanese yen once again is the top performer of the lot although dollar advances continue to outpace those of the low yielder. The yen did appreciate against all its other major counter parts as it continues to benefit from haven demand during risk-off environments. Having said that, advances against the greenback will remain tempered on concerns over further currency intervention form Japanese officials. Tomorrow’s economic calendar carries significant event risk with the non-farm payroll report and the unemployment rate highlighting the docket. Consensus estimates call for the creation of 150K jobs for the month of December while the unemployment rate is expected to up-tick to 8.7%. Today’s blowout ADP print may have set higher expectations for tomorrow’s data although in the past we have seen the report act as a poor indicator for the more encompassing NFP print. Despite the expected rise in the unemployment rate, tomorrow’s data should reinforce recent reports suggesting that the economy is indeed on proper footing. We continue to see a slight decoupling in the dollar / equities correlation which should become more pronounced later this year. Look for the dollar to take cues from the release with a move back into risk-assets likely to halt the dollar’s advance for now.

The start of the week saw risk assets outperform as US data continues to top estimates with stocks and higher yielding assets advancing across the board. The situation in Europe has continued to deteriorate however with remarks made by senior officials suggesting that the Germans remain steadfast in their opposition to expanding the European bail-out fund. While the euro trade remains increasingly crowded, we will attempt to focus on the highest yielding currency among the majors as gauge of broader markets sentiment. Although there are numerous scalps we are currently watching, the Australian dollar remains our setup of choice as we look for the aussie to pare the 1.75% advance seen in the first three trading sessions of 2012. The AUD/USD has continued to trade within the confines of a descending channel formation dating back to November third when the aussie peaked at near two month highs around 1.0385. Note that the relative strength index continues to hold below RSI trendline resistance with a breach above likely to put our setup on hold for some time. Support profit targets are eyed at 1.0240 backed by 1.0215, the 38.2% Fibonacci extension taken from the December 8th and November 3rd crests at 1.0188, and 1.0165. A break below our bottom limit at 1.0129 risks substantial losses for the aussie with subsequent targets held at the 50% extension at 1.0129, the 1.01-figure, and the 61.8% extension at 1.0065. Interim resistance stands at the 23.6% extension at 1.0263 with subsequent ceilings eyed higher at the 1.03-handle, and 1.0335. A breach here negates our short-term bias with such a scenario eyeing resistance targets at the 2012 high at 1.0385 and 1.0425.An hourly average true range of 27.39 yields profit targets of 21-24 pips depending on entry. Should ATR pull back dramatically, adjust profit targets as needed to ensure more feasible scalps. *Note that since this article was written the aussie has breached our initial topside resistance target. That said, the scalp will not be active until a break back below the 23.6% ext at 1.0263 or a rebound off the 1.03-figure or subsequent resistance level with RSI conviction. We will remain flexible with our bias with a move passed our topside limit at 1.0335 eyeing subsequent topside targets.