Aussie offensive continues ahead of EU summit

The Australian dollar is the top performer an hour into North American trade with an advance of more than 0.50% against a weaker dollar. Broader market sentiment continues to be supported by strong corporate earnings and optimism that European leaders will agree on a concrete crisis plan to shore up distressed banks and stem the threat of further debt contagion. The AUD/USD pair looks to test interim resistance at the 61.8% Fibonacci extension taken from the October 11th and 18th troughs at 1.0430, with a break eyeing topside targets at 1.0480 and the 76.4% extension at the 1.05-figure. Support rests at the 50% extension at 1.0370 with subsequent floors seen at the 38.2% extension at 1.0308, 1.0260, and the 23.6% extension at 1.0235.

Key Levels/Indicators

Despite the advance in risk assets, the euro is the weakest performing currency against the greenback early in the session after the EU summit failed to yield concrete solution to the ongoing debt crisis which has plagued the region for well over a year now. However over the weekend officials did cite progress in the talks with investors expecting final details of a rescue plan to be revealed when the summit meets on Wednesday. Markets expectations for a resolution are well rooted with a failure to reach consensus likely to trigger a broad-based sell-off in risk assets. In the meantime the euro is likely to remain well supported here with interim resistance eyed at 1.3865. A breach here eyes subsequent ceilings at the 100% Fibonacci extension taken from the October 7th and 8th troughs at the 1.39-figure, 1.3950, and the 1.40-handle. Support rests at the 76.4% extension at 1.3820 followed by 1.3795 and the 61.8% extension at 1.3770. The single currency is likely to react sharply to developments out of region as investors remain fixated on remarks from various European officials. Barring any major announcements, the euro is likely to trade within this range for some-time until leaders offer further clarity regarding the proposed rescue package.

Key Levels/Indicators

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

Twitter: @MBForex
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