Dollar rally continues, eyes key resistance

The greenback was firmer at the close of trade on Tuesday, with the Dow Jones FXCM Dollar Index (Ticker: USDollar) advancing 0.37% on the session. The advance comes amid ongoing concerns about the European crisis with Italian 10yr bond yields once against topping the 7% mark as investors remained reluctant to hold Italian paper. Markets were sharply lower at the open as European equities tumbled with the major indices off by 1-1.9% across the board. US stocks staged a mid-day rally in the afternoon however with the Dow, the S&P, and the NASDAQ closing higher by 0.14%, 0.48%, and 1.09% respectively.

The dollar closed just below interim resistance at the 9833 mark with the 50-day moving average at 9776 now acting as interim support. Stronger support is found just lower at the 38.2% Fibonacci extension taken from the June 2010 and November 2010 crests at 9745. As noted in Monday's USD Trading report, daily relative strength did rebound off RSI support with the index climbing throughout the session before encountering resistance. Looking forward, risk to the index remains weighted to the topside as key Fibonacci levels and longer-term moving averages converge below. However the recent advance is likely to see a pullback of some magnitude before proceeding higher.

An hourly chart shows the index continuing to hold within the confines of an ascending channel dating back to October 31st with the greenback holding above the 38.2% Fibonacci extension taken from the August 1st and October 27th troughs at 9754. Interim support holds here with subsequent floors seen at channel support backed by 9690 and the 23.6% extension at 9636. Topside resistance now holds at 9830 backed by 50% extension at 9850 and 9900.

The greenback advanced against three of the four component currencies highlighted by a 0.73% advance against the euro. The single currency remains under pressure as investors continue to eye yields on government debt with Italian, Spanish, and even French yields climbing despite a sell-off in equity markets. The data continues to suggest investors remain skeptical about the sustainability of the euro with German and US yields pulling back on the long end of the curve. As noted in today’s EUR/USD, GBP/USD scalp report, the euro now rests just above key support at the 1.35-figure, with a break below risking substantial losses for the single currency. The worst performer of the lot was once again the Japanese yen which closed virtually unchanged on the session. The USD/JPY remains under considerable pressure with the decline likely to be tempered on intervention concerns. Having said that, a break below yesterday’s low at 78.80 is likely to see intervention fears approach critical mass as BoJ officials have already pledged to combat “excessive speculation” in the yen.

Wednesday’s economic docket highlighted the October CPI and industrial production data. Consensus estimates call inflation to ease to 3.6% y/y, down from a previous read of 3.9% y/y. With the Fed having already pledged to keep interest rates at record lows “at least” though mid 2013, the print is unlikely to spark much volatility should the data come in at expectations. Industrial production data is seen improving to 0.4% from 0.2% in October and could provide some added support for the dollar after today’s stronger-than-expected print on advanced retail sales. Look for the greenback to hold this recent range with a significant shift in broader market sentiment proving to be the single largest risk for the reserve currency as investors would likely jettison the low yielding dollar for higher yielding currencies and assets.

Date

GMT

Importance

Release

Expected

Prior

11/16

13:30

MEDIUM

Consumer Price Index (MoM) (OCT)

0.0%

0.3%

11/16

13:30

HIGH

Consumer Price Index (YoY) (OCT)

3.6%

3.9%

11/16

13:30

MEDIUM

Consumer Price Index Ex Food & Energy (MoM) (OCT)

0.1%

0.1%

11/16

13:30

HIGH

Consumer Price Index Ex Food & Energy (YoY) (OCT)

2.1%

2.0%

11/16

13:30

LOW

Consumer Price Index n.s.a. (OCT)

226.705

226.889

11/16

13:30

LOW

Consumer Price Index Core Index s.a. (OCT)

-

226.137

11/16

14:00

MEDIUM

Net Long-Term TIC Flows (SEP)

-

$57.9B

11/16

14:00

LOW

Total Net TIC Flows (SEP)

-

$89.6B

11/16

14:15

MEDIUM

Industrial Production (OCT)

0.4%

0.2%

11/16

14:15

LOW

Capacity Utilization (OCT)

77.7%

77.4%

11/16

15:00

LOW

NAHB Housing Market Index (NOV)

18

18

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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