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WORLD FOREX : Caution Sets In Ahead Of US Fiscal Talks

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11/16/2012 | 01:41pm CEST

-- Dollar firms ahead of U.S. fiscal cliff negotiations

-- Euro weakens as caution sets in ahead of Eurogroup meeting

-- Singapore dollar weakens after economy shrinks more than expected

   By Clare Connaghan 

The dollar was mostly firmer during European trading Friday as caution set in and currencies perceived as risky bets, such as the euro and New Zealand dollar, came under pressure ahead of the first round of 'fiscal cliff' negotiations in the U.S. and Tuesday's euro-zone meeting on Greece.

As European stock markets fell, so did the euro, sliding to a session low of $1.2724 against the dollar before steadying. With little new news to drive investor sentiment, participants turned their attention to Tuesday's meeting of euro-zone finance ministers, the European Commission and the European Central Bank to discuss the disbursement of 31.5 billion euros ($40.2 billion) in aid to Greece.

Differences between the International Monetary Fund and euro-zone governments on when Greece's debt should be brought down to a sustainable level--120% of annual economic output--is delaying the release of the financial aid.

But Adam Myers, senior foreign-exchange strategist at Credit Agricole in London, warned against expecting a rally in risky currencies against the dollar, even if a deal were to be reached Tuesday.

"I don't think it will probably be enough for the market to start to move back into risk-on mode again," Mr. Myers said, citing other unresolved and critical issues including Spain, which has still to seek financial assistance, and the looming threat in the U.S. of automatic tax increases and spending cuts next year unless a political compromise can be reached in the interim.

Newly elected President Barack Obama is due to begin official negotiations with Congressional leaders later Friday and has so far taken a firm stance, saying he will seek $1.6 trillion in new tax revenue, which is more than the Republicans are likely to accept.

"It is unclear whether there will be formal press briefings after the meeting, but the less conciliatory tone that Obama has taken in recent remarks suggests that the risk is that comments point to progress being difficult, which would be negative for risk and positive for dollar," said Adam Cole, head of foreign-exchange at RBC Capital Markets in London.

In other news, Japanese Prime Minister Yoshihiko Noda formally dissolved the lower house of parliament, setting off a four-week election campaign. The dollar climbed back above Y81 against the yen, but remains off the six-and-a-half-month high hit during Thursday's session.

The dollar was also higher against the commodity-linked currencies of Australia, New Zealand and Canada, as well as the Singapore dollar, which was buffeted after Singapore's government said the economy shrank by a bigger-than-previously-estimated 5.9% in the third quarter, highlighting the tough conditions in an economy tied closely to global trade trends.

The New Zealand dollar slipped to its weakest level in more than two months, falling to as low as $0.8072.

At 1137 GMT, the euro was trading at $1.2736 against the dollar, compared with $1.2781, late Thursday in New York, according to trading system EBS. The dollar was at Y81.165 against the yen, compared with Y81.15, while the euro was at Y103.36, compared with Y103.74. The pound was trading at $1.5851 against the dollar, compared with $1.5857 late Thursday in New York.

The Wall Street Journal Dollar Index, which tracks the U.S. dollar against a basket of major currencies, was at 71.012 from 70.857.

A summary of key levels for chart-watching technical strategists is below:

Forex spot:       EUR/USD    USD/JPY    GBP/USD    USD/CHF 
Spot 1131 GMT     1.2737     81.17      1.5849     0.9456 
3 Day Trend       Bullish    Bullish    Bearish    Bearish 
Weekly Trend      Bearish    Bullish    Bearish    Bullish 
200 day ma        1.2866     79.20      1.5882     0.9395 
3rd Resistance    1.2876     81.78      1.5965     0.9513 
2nd Resistance    1.2802     81.46      1.5915     0.9487 
1st Resistance    1.2765     81.27      1.5893     0.9465 
Pivot*            1.2767     80.92      1.5855     0.9430 
1st Support       1.2715     80.89      1.5830     0.9435 
2nd Support       1.2690     80.75      1.5780     0.9403 
3rd Support       1.2661     80.30      1.5766     0.9381 
Forex spot:       AUD/USD    USD/ILS 
Spot 1131 GMT     1.0316     3.961 
3 Day Trend       Bearish    Bullish 
Weekly Trend      Bearish    Bullish 
200 day ma        1.0319     3.871 
3rd Resistance    103.89     4.040 
2nd Resistance    103.65     4.004 
1st Resistance    103.52     3.983 
Pivot*            103.42     3.966 
1st Support       103.05     3.950 
2nd Support       102.58     3.942 
3rd Support       102.36     3.915 

Dow Jones Technical Strategist Francis Bray contributed to this story.

Write to Clare Connaghan at clare.connaghan@dowjones.com

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