Euro advances to face strong headwinds

The Australian dollar is the top performing currency for the second consecutive day in pre-market trade with an advance of nearly 1% against a weaker dollar. Risk appetite remains supported after a bond auction in Italy sold close to the top end of its targeted range and optimism that European officials will be able to formulate a plan to stem the ongoing threat of contagion. Although the Italian auction saw record high yields, traders continue to look ahead to the EU Finance Ministers meeting where leaders will discuss aggressive ways to calm markets and regain investor confidence. The rally remains at risk however as traders shift their focus onto domestic affairs after rating agency Fitch warned that the US had until 2013 to devise a “credible plan” to address the ballooning deficit or risk losing its coveted AAA debt rating.

In the meantime, the high yielders remain on the offensive with the AUD/USD breaching the 50% Fibonacci extension taken from the October 27th and November 13th crests just below parity before briefly tagging the 38.2% extension at 1.0075. Interim resistance stands at 1.0075 with a break eyeing topside targets at parity, 1.0120 and the 23.6% extension at 1.0175. A break clear break below the 50% extension at 0.9990 eyes subsequent floors at the 61.8% extension at 0.9910, 0.9860, and the 76.4% extension at 0.9805. As noted in yesterday’s Winners / Losers report, look for the aussie to follow broader market sentiment with a turn in risk appetite likely to weigh on the high yielder.

Key Levels/Indicators

Level/Indicator

Level

100-Day SMA

1.0326

50-Day SMA

1.0074

20-Day SMA

1.077

2011 AUD High

1.1079

The euro is the weakest performer against the greenback with a marginal advance of just 0.14% as traders take to the sidelines as we await further developments ahead of the EU Finance Ministers meeting which will conclude tomorrow. The euro saw a sharp rally in pre-market trade on the back of the Italian bond auction with the euro breaking above trendline resistance of a descending wedge pattern that has held since late October. The gains were quickly relinquished however with the single currency moving back below the 61.8% Fibonacci extension taken from the October 27th and November 13th crests at 1.3335. Interim resistance holds here, backed by 1.3370, the 1.34-figure, and the 50% extension at 1.3425. Support rests lower at 1.3285 with a break below eyeing subsequent targets at the 76.4% extension at 1.3225 and 1.3170. An RSI break below trendline support at 41 is likely to fuel further losses in the euro with our medium-term outlook weighted to the downside. Note that the pair remains poised to react to developments out of Europe with the announcement of a concrete and credible rescue plan likely to warrant further advances in the interim.

Overnight traders will be eyeing data out of Europe with German unemployment &retail sales, and Euro zone CPI estimate & unemployment data on tap for tomorrow. Consensus estimates call for employment in Europe’s largest economy to contract by 5k jobs in November while retail sales are expected to jump by 2% y/y. A weaker print on German data overnight could weigh heavily on the euro in light of last week’s failed bond auction where demand for German debt came into questions. Later in the day Euro zone data is expected to show no change in the estimate for consumer prices or the unemployment rate which continues to hold at 10.2%.

Key Levels/Indicators

Level/Indicator

Level

100-Day SMA

1.3912

50-Day SMA

1.3621

20-Day SMA

1.3544

2011 EUR High

1.4939

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.
Comments
comments powered by Disqus