Dollar mounts counter-offensive as risk tumbles

The yen is the top performing currency in pre-market trade as it held its recent range despite a massive run-up in the dollar. The USD/JPY holds just below interim resistance at the 77.70 mark as haven flows supported both the currencies. Risk aversion is in full effect today as European concerns continue to weigh on the markets with yields on Italian bonds surging to record euro-era highs. Yields on Italian paper are now above 7% across the curve as investors become more reluctant to buy government paper. Accordingly, markets have sold-off sharply as the probability that the Italy will request bailout funds continues to rise.

The USD/JPY broke below the key 38.2% Fibonacci retracement taken from the intervention advance at the 78-figure yesterday after holding an extremely tight range for nearly a week. Interim support rests at the 50% retracement at 77.50 backed by 77.30 and the 61.8% retracement at the 77-handle. Topside resistance holds at 77.70 with subsequent ceilings eyed at the 78-figure, 78.20, and the 23.6% retracement at 78.55. Overnight trader will be eyeing data out of Japan with September machine orders and October consumer confidence data on tap.

Key Levels/Indicators

Level/Indicator

Level

100-Day SMA

77.68

50-Day SMA

76.89

20-Day SMA

77.03

2011 JPY High

75.50

The Australian dollar is the weakest performing currency at the open with a loss of nearly 1.7% against a stronger greenback. Classic haven flows continue to weigh on higher yielding “risk” currencies as investors seek to quarantine themselves from the growing uncertainties in Europe. As the highest yielding currency among the developed economies, the aussie continues to take the brunt of risk aversion flows. The aussie chart above was featured in Monday’s EUR/USD, AUD/USD Scalp report, with both pairs continuing to play out within their respective scalp targets. The AUD/USD broke below channel support early in European trade before encountering support lower at the 1.02-figure. Interim support rests here with a break below eyeing subsequent floors at the 50% Fibonacci extension taken from the October 27th and November 3rd crests at 1.0170, 1.0145, and the 61.8% extension just above the 1.01-handle. Topside resistance now holds at former trendline support, backed by 1.0280, and the 23.6% extension at 1.0315.

Overnight investors will be closely eyeing key data out of Australia with consumer inflation expectations and employment data on tap. Growth in the employment sector is expected to ease with the addition of 10K jobs for the month of October, down from a previous gain of 20.4K. More notably, the unemployment rate is seen climbing to 5.3% from 5.2%, and may see increased pressure for the Reserve Bank of Australia to cut interest rates further to stimulate the economy. As it stands, Credit Suisse overnight swaps are already factoring in 115% chance of an RBA rate cut next month, with the twelve month expectations calling for more than 120 basis points in additional rate cuts. Accordingly the data may continue to weigh on the aussie which has already come under substantial pressure over concerns in Europe and global growth prospects.

Key Levels/Indicators

Level/Indicator

Level

100-Day SMA

1.0421

50-Day SMA

1.0218

20-Day SMA

1.0361

2011 AUD High

1.1079

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

Twitter: @MBForex
WEB:
www.DailyFX.com

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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