Dollar extends gains as Super Committee fails

The greenback was markedly higher at the close of North American trade on Monday with the Dow Jones FXCM Dollar Index (Ticker:USDollar) advancing 0.65% on the session. A massive global risk sell-off fueled flows into the safety of the dollar as ongoing concerns regarding the European debt crisis and news that the congressional super-committee is unlikely to reach a consensus on the $1.2 trillion deficit reduction program weighed on markets sentiment. European equities tumbled in early trade with US stocks following suite as investors jettisoned risk across asset classes. The major indices were sharply lower at the close of trade with the Dow, the S&P, and the NASDAQ plummeting 2.11%, 1.86%, and 1.92% respectively. Today’s shift into risk aversion was unmistakable with yields on US Treasuries falling across the curve and a 2year auction yielding a bid-to-cover ratio of 4.07. In the meantime, concerns of debt contagion in Europe continued to take root with yields on Spanish and Italian climbing as investors demanded higher returns to hold government paper.

The greenback pares back some of the gains made early in the session with the index holding above interim support at eh 9833 mark. Topside targets for the dollar continue to be eyed at the 23.6% Fibonacci extension taken from the June 2010 and November 2010 crests at 9970. Although daily relative strength looks to break RSI resistance at the 57-mark, in the interim the dollar may look to consolidate within its recent range after advancing 5 out of the past 6 sessions. Note that shifts in the slope of our moving averages also suggest further dollar gains moving forward.

An hourly chart shows the index breaking above the convergence of the 9900-level and channel support before losing steam just ahead of the 61.8% Fibonacci extension taken from the August 1st and October 27th troughs at 9946. Interim resistance holds here with a breach eyeing subsequent ceilings at the psychological 10,000 mark and the 76.4% extension at 10,064. Support rests with former channel resistance, with a break here eye support targets at the 50% extension at 9850, 9800, and the 38.2% extension at 9754.

The greenback advanced against all four component currencies highlighted by a 1.50% advance against the Australian dollar. Higher yielding currencies came under substantial pressure today as investors sought refuge in lower yielding assets like the dollar and US Treasuries. The Japanese yen is the top performer of the lot, sliding a modest 0.06% as intervention concerns offset advances on the back of haven flows. Accordingly the USD/JPY continues to hold between the 76.4% and 61.8% Fibonacci retracement taken from the intervention advance. The euro was rather resilient today despite the global risk sell-off, with the pair off just 0.18% at the close of trade. For detailed euro scalp setups and targets refer to today’s EUR/USD, GBP/USD Scalp Report.

Tuesday's economic calendar is highlighted by the 3Q GDP and personal consumption data, and the FOMC minutes from the November 2nd policy meeting. Both GDP and personal consumption are widely expected to remain unchanged at 2.5% and 2.4% respectively with the FOMC minutes posing the largest risk to the dollar. Investors will be closely eyeing the minutes for talk regarding the possible implementation of additional quantitative easing measures. Should the minutes reveal a greater rift among the voting members with regards to further easing, the dollar could pare recent gains as traders look to shield themselves from dollar diluting measures from the central bank.

Upcoming Events

Date

GMT

Importance

Release

Expected

Prior

11/22

13:30

HIGH

Gross Domestic Product (Annualized) (3Q S)

2.5%

2.5%

11/22

13:30

MEDIUM

Personal Consumption (3Q S)

2.4%

2.4%

11/22

13:30

MEDIUM

Gross Domestic Product Price Index (3Q S)

2.5%

2.5%

11/22

13:30

MEDIUM

Core Personal Consumption Expenditure (QoQ) (3Q S)

2.1%

2.1%

11/22

15:00

LOW

Richmond Fed Manufacturing Index (NOV)

-2

-6

11/22

19:00

HIGH

Federal Open Market Committee Meeting Minutes

-

-

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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