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James Hyerczyk
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UK

The GBP/USD closed higher for the week, buoyed mostly by the weaker dollar. The fiscal cliff held the Greenback in check for most of the week, but it was the action by the Fed to expand its asset-buying program that exerted the most pressure on the dollar. 

Technically, the Sterling’s rally fell short of the November high at 1.6174 before backing down. The weakness following the test of the top was more corrective in nature rather than trend-changing which suggests that traders will make another attempt to take out this top. 

It was also a good week for the EUR/USD which posted a strong gain. Today’s action suggests that traders are still respecting last week’s high at 1.3126. Like the British Pound, Friday’s sell-off from the high of the day is more corrective than trend changing. Investors appear to be in a profit-taking or position paring mode ahead of the week-end. 

Fundamentally, it was a good week for the Euro. A European Union banking deal was reached, interest rates fell in Spain and Italy and Greece received some of its financial aid. Although these three events do not indicate the tide has turned in Europe, they are signs of stabilization which traders seem to prefer. If 1.3126 proves to be an important top then traders should look for a rangebound market next week. 

February crude oil remained rangebound between $85.00 and $91.00 this week. With the pivot price firmly established at $88.00, a close under this level will put a downward bias on the market. 

Fundamentally, oversupply is still the main factor keeping a lid on prices. With the market sitting in an elongated range, it appears that investors are content with the price action. Although money has been flowing into other assets, particularly the stock market, investors seem to be willing to use crude oil as a hedge just in case Washington officials can’t reach a compromise on taxes and spending to avoid the so-called “fiscal cliff”. 

Like crude oil, investors are also shying away from gold as they seek some protection against the possibility of the fiscal cliff. If this event takes place as predicted, then investors are likely to move from equities to the safety of the U.S. Dollar. A weaker dollar tends to put pressure on commodities. Since investors already appear to be short gold, a stronger dollar is likely to have less of a bearish effect on the precious metal. 

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