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Daily Market Review
The first trading session of 2013 started strongly, as appetite for riskier assets strengthened after U.S. lawmakers reached a deal to avert the fiscal cliff crisis.
The U.S. House of Representatives voted Tuesday night in favor of a deal to avert the fiscal cliff, approximately USD600 billion in automatic tax hikes and spending cuts which came into effect on January 1.
The Asian markets were first to react to the new deal and rose sharply. Hong Kong's Hang Seng Index rallied 2.89%, while Australia’s ASX/200 Index settled at 1.2% higher. Financial markets in Japan and China remained closed for a public holiday.
The Rally in the markets continues in Europe as well despite disappointing numbers that pours in. Spanish manufacturing sector activity fell more-than-expected last month, official data showed on Wednesday. In a report, Spain’s Manufacturing PMI fell to 44.6, from 45.3 in the preceding month.
Analysts had expected Spain’s Manufacturing PMI to fall to 45.1 last month.
Later in the day, U.K. was to release data on manufacturing activity, while in the U.S. the Institute of Supply Management is to produce a report on manufacturing growth.
Now that the fiscal cliff talks is behind us, traders will now return to assess the economy strength based on the day to day financial numbers and expectations. The highly-anticipated data on U.S. nonfarm payrolls is expected on Friday and investors will try to gauge the strength of the country’s economic recovery.
Any improvement in the U.S. economy could scale back expectations for further easing from the Federal Reserve.
GOLD is trading nearly a two weeks high following the agreement to avert the fiscal cliff, bolstering investor demand for higher yielding asset.
The dollar is seeing weakening across the board against a basket of currencies including the precious metals. Dollar weakness usually benefits gold, as it boosts the metal's appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies.
On the technical perspective, the breakout of 1665-6 will send the asset to 1697-1700. If it returns and break below the 1665 level, support can be seen at 1651 and 1635.