Rebound in risk appetite weighs on dollar

The New Zealand dollar is the top performer against a weaker greenback in early North American trade with an advance of 1.34% on the session. Risk sentiment continued to improve today after the Italian Lower House approved new austerity measures and Euro group president Jean-Claude Junker cited that officials are likely to meet an informal December 19th deadline to orchestrate loans to the International Monetary Fund as part of a plan to battle the deepening crisis in Europe. The plan comes after the EU summit last week where leaders decided to channel an additional $261 billion in loans to the IMF. The New Zealand banking system has a considerable amount of exposure to the European sovereign debt and accordingly the remarks helped ease concerns with the kiwi climbing throughout European trade.

The NZD/USD pair broke above the 23.6% Fibonacci retracement taken from the November decline at 0.7585 before encountering resistance at 0.7640. A topside break here eyes subsequent ceilings at 0.7680 and the 38.2% retracement at 0.7710. Interim support rests at 0.7610 backed by 0.7585, 0.7550 and the 0.75-figure. Look for the kiwi to remain supported throughout the US session with our medium-term bias holding to the downside.

Key Levels/Indicators

Level/Indicator

Level

100-Day SMA

0.8011

50-Day SMA

0.7797

20-Day SMA

0.7616

2011 NZD High

0.8841

The loonie is the worst performer among the majors with a decline of 0.10% against the dollar. Weaker than expected data out of Canada this morning continues to weigh on the currency after October international securities transactions grossly missed estimates with a print of 2.03 billion. Consensus estimates had called for a read of 7.25 billion, a slight decrease from a previous print of 7.35 billion. The data suggests international investments in Canadian securities is waning, capping loonie advances despite the decline seen in the dollar today.

The USD/CAD pair, which was featured in this week’s Scalp Report, broke below channel support yesterday before rebounding off the 38.2% Fibonacci extension taken from the October 27th and December 8th troughs at 1.0295. Look for the loonie to remain under pressure despite this morning’s rally in risk assets with a break above the convergence of short-term channel resistance and the 50% Fibonacci extension at 1.0365 eyeing topside targets at 1.0395, 1.0420, and the 61.8% extension at 1.0440. Interim support rests at 1.0335 followed by 1.0295 and 1.0245. Our medium-term bias on the USD/CAD remains weighted to the topside so long as the exchange rate holds above 1.0250.

Key Levels/Indicators

Level/Indicator

Level

100-Day SMA

1.0085

50-Day SMA

1.0204

20-Day SMA

1.0291

2011 CAD High

0.9406

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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