Dollar and yen advance on safe haven flows

The Japanese yen is the top performing currency against a stronger dollar at the open of North American trade with a modest advance of just 0.10%. Risk aversion is in full force at the start of the week on speculation that the congressional deficit reduction committee, dubbed the “super committee,” will fail to reach a compromise to cut $1.2 trillion in government spending over the next ten years ahead of the Nov. 23 deadline. Risk promptly sold off in European trade as ongoing concerns over the debt crisis were exacerbated as bond yields in the most indebted periphery nation’s continued to climb despite a decisive victory for Spain’s conservative party which remains committed to the implementation of strict austerity measures. Spain’s Socialist party became the fifth government in the region to fall this year as increased borrowing costs and fears of debt contagion saw governments in Portugal, Ireland, Italy and Greece topple.

Accordingly, investors have started the week on the defensive with traders jettisoning risk in favor of lower yielding assets like the Japanese yen and the greenback. Risk aversion flows have continued to support the two with the USD/JPY pair holding within the confines of a descending channel formation. Interim support rests at the 76.80 with subsequent floors seen at 76.65, channel support, and the 76.4% Fibonacci retracement taken from the intervention advance at 75.50. A breach above channel resistance eyes topside targets at the 61.8% retracement at the 77-figure backed by 77.30 and the 50% retracement at 77.50. Although the yen is likely to continue to climb on the back of heightened risk-off flows, gains are likely to be tempered as traders remain on intervention watch.

Key Levels/Indicators

Level/Indicator

Level

100-Day SMA

76.84

50-Day SMA

76.83

20-Day SMA

76.86

2011 JPY High

75.50

The Australian dollar is the weakest performer an hour into US trade with AUD/USD pair off by more than 1.5% as traders aggressively turned on risk. The high yielder continues to hold within the confines of a descending channel formation dating back to November 11th with an embedded descending channel being carved out in overnight trade. Look for the aussie to remain under pressure as investors seek refuge in the safety of US Treasuries and the greenback, with a break below interim support at 0.9870 eying subsequent support targets at 0.9840, the 0.98-figure, and 0.9760. Extended targets are held at the 161.8% Fibonacci extension taken from the November 3rd and 13th crests at the 0.97-handle. A breach above channel resistance eyes topside targets at the 100% extension at 0.9950, 0.9980, and the 76.4% extension at 1.0040. For detailed scalp targets on the AUD/USD and the EUR/USD refer to Thursday’s Scalp Report.

Key Levels/Indicators

Level/Indicator

Level

100-Day SMA

1.0381

50-Day SMA

1.0135

20-Day SMA

1.0301

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:
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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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