Forex Commentary:

The EURUSD hit a 2-1/2 month high above $1.38 on Tuesday, boosted by solid global manufacturing data, though analysts said risk appetite could fade if worries resurface about Europe’s ability to manage its debt crisis.

The euro rose as high as $1.3836, its highest since early November, with gains accelerating after it broke above resistance at $1.3786. A close above $1.3750 would open the way for a run toward $1.40, “a slam dunk unless we get some kind of surprise from Europe about the sovereign debt crisis,” said Dan Dorrow, head of research at FX execution firm Faros Trading.

The Australian dollar rose 1.6 percent to $1.0125, just off a four-week high, after policymakers gave an upbeat assessment of the domestic and global economy

Trading Setups / Chart in Focus:

EURUSD:

The EURUSD broke above resistance at 1.3760 and closed above 1.3800. We could see a push higher to re-test 1.4000 before moving substantially lower. Traders could look to join the existing uptrend on any rotations back to support in the near-term. Any obvious and well-defined bearish price action setups near 1.4000 could be viewed as potential shorting opportunities.

AUDUSD:

The AUDUSD finally broke out of its recent well-defined trading range today, closing above parity after rising 1.6 percent on the back of an upbeat economic assessment.

Any moves back down to the 1.0000 area, which is now support, could be viewed as buying opportunities pending any bullish price action forming near this level.

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Other Markets:

On Wall Street today the Dow and S&P 500 closed at their highest levels since June of 2008 and looked primed for even more gains on the back of strong earnings and signs of a surge in U.S. manufacturing.

Data showing improved factory activity and strong results from shipping company UPS Inc, seen as a gauge for economic activity, bolstered the growing impression among investors that a recovery was broadening.

The Dow added 148.23 points, or 1.25 percent, the S&P 500 gained 21.45 points, or 1.67 percent, and the Nasdaq added 51.11 points, or 1.89 percent.

Upcoming important economic announcements: 2/2/2011

8:15am EST: United States – ADP Non-Farm Employment Change
4:45pm EST: New Zealand – Employment Change q/q
4:45pm EST: New Zealand – Unemployment Rate
7:30pm EST: Australia – Building Approvals m/m
7:30pm EST: Australia – Trade Balance