US dollar strength defies expectations

The Swiss franc is the top performer for the second consecutive day against a substantially stronger dollar with the swissie off by more than 0.65% in early North American trade. Concerns over the European debt crisis reached a new level in London trade after a German bond auction saw unusually weak demand with a bid to cover ration of just 1.1. The news fueled risk aversion flows as fears over the health of the region’s largest economy continue to take root. Accordingly the dollar has seen a massive surge as demand for the safety of the greenback continued to climb. The sell-off in risk was also exacerbated by weaker than expected prints on German and Euro zone manufacturing PMI which showed further contraction in production. European equity markets closed sharply lower across the board with US stocks off by 1.7-2% at noon in New York.

The USD/CHF saw a topside break of trendline resistance from the November 17th high before running out of steam head of the 100% Fibonacci extension taken from the 15th and October 27th troughs at 0.9235. Interim resistance holds here with a breach eyeing topside targets at 0.9260 and 0.9280. Support rests at 0.9180 with subsequent floor seen at 0.9150, 0.9120, and the 76.4% extension at 0.9077. Note that due to the EUR/CHF peg from the Swiss National Bank, downside moves are likely to be limited unless the euro sees substantial advances to the topside.

Key Levels/Indicators

Level/Indicator

Level

100-Day SMA

0.8519

50-Day SMA

0.8982

20-Day SMA

0.8985

2011 CHF High

0.7079

The Australian dollar is the weakest performer mid-day in New York with the AUD/USD pair off by more than 1.6% on the session. Higher yielding currencies continue to come under pressure as investors jettison risk in favor of lower yielding, “haven” assets. Expectations for interest rate cuts from the RBA have also continued to weigh on the aussie with Credit Suisse overnight swaps now factoring in a 132% chance of a 25 basis point cut next month, with twelve month expectations now calling for a 165 basis points in additional cuts.

The aussie broke below the 161.8% Fibonacci extension taken from the November 3rd and 13th crests at the 0.97-figure before rebounding off interim support at 0.9665. A break below this level risks further losses for the pair with subsequent floors seen lower at the 0.96-handle and 0.9550. Interim resistance holds at the figure with a breach eyeing topside targets at former trendline support, 0.9770, and the 0.98-handle. Only a break back above the 100% extension at 0.9950 would negate our medium-term bearish bias. Although a pullback of some magnitude is expected over the next 24-hours, look for the aussie to remain under pressure going into the close of the week as markets continue to fret about the deteriorating conditions in Europe.

Key Levels/Indicators

Level/Indicator

Level

100-Day SMA

1.0362

50-Day SMA

1.0112

20-Day SMA

1.0231

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:
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.

Twitter: @MBForex
WEB: www.DailyFX.com

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