US dollar soars as investor appetite plummets

The loonie tops the performance charts an hour into North American trade with a 0.22% advance against a stronger dollar. News that Berkshire Hathaway was looking to invest $5B into Bank of America saw sentiment spike in pre-market trade, with BoA shares surging up to 27% minutes after the release. The news came to the benefit of the Canadian dollar which broke below trendline support of a wedge formation dating back to the 18th before rebounding off the 38.2% Fibonacci extension taken from the June 27th and August 9th crests just above the 0.98-figure. Risk appetite quickly turned heading into the US open, with equities falling more than 1.4% across the board. Accordingly the USDCAD is likely to move higher as haven flows come to the benefit of the dollar with topside targets eyed at 0.9850, the 23.6% Fibonacci extension at 0.9880 and the 0.99-handle. Interim support holds at the 38.2% extension with subsequent floors seen at 0.9790, 0.9775, and the 50% Fibonacci extension at 0.9450.

Key Levels/Indicators

Level/Indicator

Level

50-Day SMA

0.9697

20-Day SMA

0.9801

10-Day SMA

0.9858

2011 CAD High

0.9406

The sterling was the weakest of the majors against the greenback, with the GBP/USD pair breaking below the 50% Fibonacci extension taken from the July 18th and August 10th troughs at 1.6350 early in the session. The dollar continues to outperform today ahead of the much anticipated Jackson Hole Economic Policy Symposium tomorrow where traders will be eagerly awaiting remarks by keynote speakers Fed Chairman Ben Bernanke and ECB President Jean-Claude Trichet. And while it is highly unlikely that Bernanke will introduce QE3, investors will be lending a keen ear to his comments for a pledge that the central bank is willing to move in to support the faltering recovery. Nonetheless the GBP/USD pair is likely to remain vulnerable as traders unwind ahead of tomorrow’s headline event risk with downside targets seen at the 38.2% extension at 1.6295, 1.6260, and the 23.6% Fibonacci extension at 1.6225. Topside resistance holds at 1.6350 with subsequent ceilings eyed at the 61.8% extension at 1.6405 and 1.6440. Overnight investors will be eyeing data out of the UK with the 2Q GDP figures and the June index of services report on tap.

Key Levels/Indicators

Level/Indicator

Level

50-Day SMA

1.6216

20-Day SMA

1.6367

10-Day SMA

1.6427

2011 GBP High

1.6737

About the Author
Michael Boutros Michael Boutros, Currency Analyst for DailyFX.com is a Technical/Fundamental Analyst specializing in the FX markets. E-mail: mboutros@fxcm.com.
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