Dollar consolidation underway ahead of holiday

The greenback was fractionally higher at the close of North American trade on Monday with the Dow Jones FXCM Dollar Index (Ticker:USDollar) advancing 0.07% on the session. A weaker-than-expected 3Q GDP print this morning set the tone for the day with all three major indices struggling to pare early losses throughout the session. Markets spent the majority of the day in consolidation with the Dow, the S&P, and the NASDAQ closing lower by 0.46%, 0.41% and 0.07% respectively. Ongoing concerns regarding the European debt crisis persisted today despite an announcement from the IMF with regards to the unveiling of new liquidity lines for indebted Euro zone nations. The effort to provide added liquidity is unlikely to ease long-term concerns however as the underlying issue continues to be one of solvency, not liquidity.

The release of the FOMC minutes from the November 2nd policy meeting hit the newswires ahead of schedule Tuesday with a statement citing increased dissention among central bankers. The report highlighted the growing rift between policy makers with regard to whether more easing was necessary to keep markets on proper footing. Accordingly the door remains open for further quantitative easing from the Fed and could have profound impacts on the dollar should this come to pass.

The greenback failed to best the 9945 mark despite a break above RSI resistance. As noted in yesterday’s USD Trading Report, the dollar correction looks to gather pace with the index now climbing 6 out of the past 7 session. Ultimately a tag of the 23.6% Fibonacci extension taken from the June 2010 and November 2010 crests at 9970 is still in the cards, but in the meantime we look for the dollar to ease noting daily support at 9833 and the 38.2% extension at 9745.

An hourly chart shows the index continuing to straddle former channel resistance as price action holds between 9900 and the 61.8% Fibonacci extension taken from the August 1st and October 27th troughs at 9946. A break below the figures eyes subsequent floors at the 50% extension at 9850 and 9800. Topside breaks eye the 9970 mark and the key psychological level at 10,000.

The greenback advanced against three of the four component currencies highlighted by at 0.12% advance against the Japanese yen. Despite the advance, the USD/JPY continues to hold within its recent range between 76.80 and the 77-handle after a brief advance to 77.30 was quickly relinquished. Surprisingly the euro was the top performer of the lot, posting a modest advance of just 0.14% after moving just 55% of its daily average true range. Although the IMF’s liquidity program does not aim to ensure the fiscal sustainability of indebted periphery nations, it does buy officials further time as global uncertainties continue to loom over the region. Accordingly the euro may see a reprieve from the selling pressure seen over the past few weeks. For complete scalp charts and levels on the euro and the sterling refer to Thursday’s Scalp Report.

Wednesday's economic calendar is highlighted by the October durable goods orders, personal income/spending, and the University of Michigan confidence survey. Consensus estimates call for orders to contract by 1.2%, down from a previous 0.8% contraction in November. Personal income is expected to increase by 0.3% after a previous print of 0.1% with the pace of spending growth seen easing to 0.3% from a read of 0.6% a month earlier. Although traders will be closely eyeing the data in light of today’s tepid GDP report, volatility may be capped as trade thins out head of the Thanksgiving Holiday on Thursday. The University of Michigan confidence survey wraps up the session with estimates calling for a print of 64.5, a slight improvement from the 64.2 read a month earlier. Look for the dollar to continue to consolidate heading into the close of the week as investors take to the sidelines ahead of the extended holiday weekend.

Upcoming Events

Date

GMT

Importance

Release

Expected

Prior

11/23

12:00

LOW

MBA Mortgage Applications (NOV 18)

-

-10.0%

11/23

13:30

HIGH

Durable Goods Orders (OCT)

-1.2%

-0.8%

11/23

13:30

MEDIUM

Durables ex Transportation (OCT)

0.0%

1.7%

11/23

13:30

LOW

Non-Defense Capital Goods Orders ex Aircrafts (OCT)

-0.7%

2.4%

11/23

13:30

LOW

Non-Defense Capital Goods Shipments ex Aircrafts (OCT)

-

-0.9%

11/23

13:30

MEDIUM

Personal Income (OCT)

0.3%

0.1%

11/23

13:30

MEDIUM

Personal Spending (OCT)

0.3%

0.6%

11/23

13:30

LOW

Personal Consumption Expenditure Deflator (YoY) (OCT)

2.7%

2.9%

11/23

13:30

LOW

Personal Consumption Expenditure Core (MoM) (OCT)

0.1%

0.0%

11/23

13:30

LOW

Personal Consumption Expenditure Core (YoY) (OCT)

1.7%

1.6%

11/23

13:30

LOW

Initial Jobless Claims (NOV 19)

390K

388K

11/23

13:30

LOW

Continuing Claims (NOV 12)

3615K

3608K

11/23

14:55

HIGH

U. of Michigan Confidence (NOV F)

64.5

64.2

11/23

16:00

LOW

Kansas City Fed Manufacturing Activity Index (NOV)

9

8

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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