Yen and dollar strength persist as Europe drifts

The yen is the top performing currency for the second consecutive day as haven flows saw the USD/JPY exchange rate hold its recent range. The dollar continues to outperform in early US trade as ongoing concerns about European debt remain elevated with Italian bond yields once again approaching all time highs. With doubts that new governments in Greece and Italy will be able to effectively address structural deficits, investors have continued to jettison risk with European markets selling off sharply in overnight trade.

As noted in yesterday’s Winners / Losers report, yen advances are likely to continue to be tempered as traders remain on intervention watch noting interim support at 76.80, 76.65, and the 76.4% Fibonacci retracement taken from the intervention advance at 76.50. Interim resistance rests with the 61.8% retracement at the 77-figure, backed by 77.30 and the 50% retracement at 77.50. Look for the USD/JPY pair to remain under pressure with traders continuing to lend a keen ear to Japanese officials as they continue to disseminate rhetoric with regards to the currencies over-valuation. Overnight traders will be eyeing data out of Japan with housing loans and the BoJ interest rate decision on tap. Although the central bank is widely expected to hold rates at 0.10%, officials may see scope to increase the size of their asset purchases in an effort to support the fragile recovery. Should the BoJ choose to further increase easing measures, the yen may come under pressure as demand for haven subsides.

Key Levels/Indicators

Level/Indicator

Level

100-Day SMA

77.55

50-Day SMA

76.93

20-Day SMA

77.07

2011 JPY High

75.50

The New Zealand dollar is the weakest performing currency at the open of trade in North America with a decline of 1.28% against a stronger greenback. The kiwi has been particularly hard hit in overnight trade as investors continued to jettison risky assets on debt concerns. Although the aussie is often the hardest hit on risk aversion flows, minutes from the last RBA meeting cited a less-dovish-tone than expected with the minutes noting arguments to keep rates unchanged at the November 1st meeting. The release limited losses for the aussie, with the high yielding kiwi taking the brunt of the aversion flows against the reserve currency.

Interim support now rests at the 76.4% Fibonacci extension taken from the October 28th and November 7th crests at 0.7666 with subsequent floors seen at 0.7640 and the 100% extension at 0.7565. Topside resistance holds at the 61.8% extension at 0.7730 with a breach here eying topside targets at 0.7760, and the 50% extension at 0.7780. Downside moves here may be limited after the sell-off seen in overnight trade as US markets open flat early in the session. Although the medium-term bias on the pair remains weighted to the downside, broader markets sentiment is likely to steer price action as investors remain focused on developments out of the Europe.

Key Levels/Indicators

Level/Indicator

Level

100-Day SMA

0.8182

50-Day SMA

0.7956

20-Day SMA

0.7951

2011 NZD High

0.8842

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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