Dollar starts year on defense as risk trade picks up

The New Zealand dollar is the top performing currency against the greenback an hour into US trade with an advance of more than 1.40% on the session. Despite a mixed performance in European stocks, US equities have kicked off the year with an impressive rally with all three major indices surging more than 2%. Stronger than expected ISM manufacturing data helped fueled today’s rally with the December print marking the 29th consecutive month of growth in the manufacturing sector. November construction spending also topped estimates with a print of 1.2% m/m, beating calls for a read of just 0.5% m/m. Higher yielding currencies have remained on the offensive early in the session with the kiwi and the aussie acting as chief beneficiaries of risk-on flows.

The NZD/USD broke above the 61.8% Fibonacci extension taken from the December 15th and 29th troughs at 0.7845 before attempting a breach above the 76.4% extension at 0.7891. A break above this level exposes topside targets at the 0.7925 and the 100% extension at 0.7960. Interim support rests at 0.7845 with subsequen5t floors seen at 0.7820 and the 50% extension at 0.7805. Look for the pair to remain well supported into the European close with a turn in broader market sentiment likely to weigh on the kiwi.

Key Levels/Indicators

Level/Indicator

Level

100-Day SMA

0.7921

50-Day SMA

0.7755

20-Day SMA

0.7709

2011 NZD High

0.8841

The yen is the weakest performer against a heavy dollar with the USD/JPY sliding 0.26% in early trade. Although the dollar has come under considerable pressure early in the session, yen advances are likely to remain tempered as intervention concerns limit gains. The pair broke below the 76.90 support level in overnight trade before losing steam just ahead of interim support at 76.55. This level is likely to hold with topside resistance targets seen at 76.75, 76.90, and 77.15. Key resistance rests with the 23.6% Fibonacci extension taken from the October 31st and November 18th troughs at 77.50. The medium-term outlook for the USD/JPY remains weighted to the topside.

Key Levels/Indicators

Level/Indicator

Level

100-Day SMA

76.83

50-Day SMA

76.74

20-Day SMA

76.70

2011 JPY High

75.56

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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