US dollar rally slows as markets drift lower

The euro is the top performing currency ahead of the US open with an advance of 0.28% against a weaker dollar. Risk sentiment seems to have taken a modest reprieve from the heavy selling pressure sparked yesterday after newswires reported that Fitch had warned that US exposure to the euro zone debt crisis poses a significant threat to the banking sector. Bond auctions in Spain and France also weighed on risk appetite as investors demanded higher yields to hold government paper. Stronger-than-expected data out of the US helped ease market jitters after housing starts, building permits, and weekly jobless claims all topped consensus estimates with the dollar coming under some pressure as demand for safe haven abated.

The EUR/USD failed an attempt at a breach above the 76.4% Fibonacci extension taken from the November 8th and 13th crests at 1.3520. Interim resistance holds here with subsequent ceilings seen at 1.3550, the 61.8% extension at 1.3575 and the 50% extension at 1.3620. Support rests with the 100% extension at 1.3430 backed by the 1.34-handle and 1.3350. Look for headlines out of Europe to continue to steer euro price action, with the likelihood of a relief rally building after today’s favorable US data prints. Overnight traders will be eyeing producer prices out of the Germany with estimates calling for pace of price growth to ease to 5.3% y/y from 5.5% y/y.

Key Levels/Indicators

Level/Indicator

Level

100-Day SMA

1.3990

50-Day SMA

1.3681

20-Day SMA

1.3775

2011 EUR High

1.4939

The New Zealand dollar is the weakest performing currency for the third consecutive day with the kiwi off by more than 0.20% ahead of the open. The kiwi has remained under substantial pressure this week as ongoing concerns about the European crisis continued to weigh on higher yielding assets and currencies. Look for the kiwi to remain heavy here as expectations for further rate increases subsided today after report showed that producer prices grew at their slowest rate since December of 2009. With Reserve Bank of Australia widely expected to ease further, it’s unlikely the RBNZ will look to hike rates any time soon, with Credit Suisse overnight swaps now factoring in a 32% chance of a rate cut from the central bank.

The NZD/USD hit one month lows in overnight trade with the pair holding just above interim support at the 0.7625 level. A break here eyes subsequent support targets at 0.7580, 0.7540, and the 0.75-figure. Topside resistance holds at the 100% Fibonacci extension taken from the November 7th and 13th crests at 0.7655 backed closely by 0.7680 and the 76.4% extension at 0.7720. Key resistance is eyed just higher at the 61.8% extension at 0.7760.

Key Levels/Indicators

Level/Indicator

Level

100-Day SMA

0.8172

50-Day SMA

0.7932

20-Day SMA

0.7927

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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