LONDON (SHARECAST) - Despite there being final Q3 Euro zone GDP figures out today the main focal event of is going to be the US December employment report, which is expected to show gains in excess of 150k or more after the positive sentiment generated earlier this week by the record gains in the ADP employment number on Wednesday, as well as positive ISM and factory data released earlier this week. A number of analysts have revised their estimates up for today’s payroll figure in light of the ADP number, but consensus is for a rise of around 150k, against last months 39k rise, while the unemployment rate is expected to slip back to 9.7%. Some numbers in excess of 200k have been bandied about, and in the event this does happen, then we can expect the US dollar to push higher against the major currency pairs, especially given concerns about Europe at the moment. The single currency has continued to come under pressure on the back of rising peripheral bond yields and sovereign debt concerns as the European Commission unveiled plans to outline ways to protect taxpayers from future banking crises by means of a number of default mechanisms, including debt write downs, or haircuts. Widening peripheral bond yields have fuelled concerns that the bond auctions due next week could well be even more expensive at current rates, especially as Portugal today announced two extra auctions for January 12th, in addition to Spain and Italy who are looking to raise money on January 13th. The positive effects prompted by the agreement between China and Spain to add to its exposure of Spanish debt by around €6bn appears to have been put to one side as the US dollar continues to remain well supported on the back of rising US treasury yields, and the prospects of economic recovery in the US. The pound suffered another setback yesterday after Services PMI for December slowed for the first time in 20 months showing a surprise contraction to 49.7 despite expectations of 53, suggesting that Q4 GDP growth could well be slightly below expectations, due to the bad weather in December. However after a brief dip back the pound has continued to gain, especially at the expense of euro as it hit its highest levels in early two weeks against a basket of currencies. EURUSD – the long awaited drop through key support at 1.3080 and the 200 day MA occurred yesterday and we look to close the week below this level and to take out the previous lows at 1.2965 for a test towards the 1.2795 level which is the 61.8% retracement of the 1.1880/1.4280 up move. Rebounds should find selling interest in or around 1.3080 while a close back above could well presage a short squeeze back towards 1.3180 initially. GBPUSD – the pound continues to find its progress against the dollar difficult to sustain with rallies getting shallower. It has however been unable to break below 1.5430 this week. A sustained move below 1.5400 should open up the 1.5265 area which remains the key longer term target and this level is the 50% retracement of the up move from the May 2010 lows at 1.4230 to the 1.6300 highs. However the pound will remain susceptible to sharp rallies towards 1.5570. There is also trend line resistance around the 1.5660 area, which can be drawn down from the 1.6300 highs. Only a push through 1.5715 38.2% retracement of the down move from the 1.6300 highs to the 1.5350 lows would target 1.5820. EURGBP – the break below 0.8450 has now seen the 0.8400 target met and the next objective looks to be a test of the double support and November lows at 0.8330, which also coincides with trend line support from the lows at 0.8065. Pullbacks should find resistance around the old lows around 0.8450. Any overspills should be capped by the 200 day MA at 0.8485/90. USDJPY – the support around the 50 day MA at 82.80 should contain any dips as it did yesterday as the market looks to test back towards the recent highs around the 84.40/50 area. This level, at 82.80 should now act as support in the short term for any move higher and this now pulls the bias back to a more bullish scenario. Back below 82.75 re-targets the 81.90 area. The main resistance, and obstacle to a move towards 85.80, the 38.2% retracement of the 95.00/80.25 down move, remains around the December highs at 84.40/50.

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