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US Dollar Recovers on Afternoon Stock Rally- Index Eyes 9900

By , Currency Strategist
17 November 2011 23:20 GMT
US_Dollar_Recovers_on_Afternoon_Stock_Rally-_Index_Eyes_9900_body_Picture_2.png, US Dollar Recovers on Afternoon Stock Rally- Index Eyes 9900

US_Dollar_Recovers_on_Afternoon_Stock_Rally-_Index_Eyes_9900_body_Picture_3.png, US Dollar Recovers on Afternoon Stock Rally- Index Eyes 9900

The greenback was firmer at the close of North American trade with the Dow Jones FXCM Dollar Index (Ticker:USDollar) advancing 0.19% on the session. Stronger-than-expected housing and jobless claims data saw equity markets open largely flat in early morning trade before a sharp afternoon sell-off saw the major indices slide substantially with the Dow, the S&P, and the NASDAQ plummeting 1.13%, 1.68%, and 1.96% respectively. The S&P 500 closed below key support at 1225 with the Dow testing 2-week lows before pulling back above the 11,700-level. The dollar pared early losses as risk sentiment quickly shifted with the index recovering from a 0.2% decline an hour into US trade. All eyes remain fixated on Europe as yields on French and Spanish debt continue to rise with investors demanding higher returns for holding government paper.

The greenback held above the 9833 mark cited in yesterday’s USD Trading report, as heightened risk-off flows continued to see traders favor the safety of the reserve currency. Despite today’s gains, daily relative strength continues to hold below interim RSI resistance at the 57-mark, with a break here supporting further dollar advances to the 9900-level. Ultimately we look for the dollar to test the 23.6% Fibonacci extension taken from the June 2010 and November 2010 crests at 9970. Looking ahead over the next 24-hours, the greenback may pare some of the recent gains as investors look to unwind haven flows ahead of the weekend.

US_Dollar_Recovers_on_Afternoon_Stock_Rally-_Index_Eyes_9900_body_Picture_4.png, US Dollar Recovers on Afternoon Stock Rally- Index Eyes 9900

An hourly chart shows the index continuing to hold within the confines of an ascending channel dating back to October 31st with the dollar closing above the 50% Fibonacci extension taken from the August 1st and October 27th troughs at 9850. The 9900 mark continues to elude the greenback and the dollar may fail to see a test of this level for now with bearish RSI divergence suggesting a short-term correction may be in the cards in the days ahead. A break above 9880 eyes resistance at 9900 backed by channel resistance and the 61.8% extension at 9945. Interim support holds at the 50% extension at 9850 with subsequent floors seen lower at 9800 and the 38.2% extension at 9754.

US_Dollar_Recovers_on_Afternoon_Stock_Rally-_Index_Eyes_9900_body_Picture_5.png, US Dollar Recovers on Afternoon Stock Rally- Index Eyes 9900

The greenback advanced against two of the four component currencies highlighted by a 0.81% advance against the Australian dollar. Ongoing debt concerns have fueled haven flows as investors continue to jettison higher yielding assets with the aussie coming under substantial pressure in US trade. Scalp targets for the AUD/USD and the EUR/USD have been highlighted in today’s Scalp Report. The dollar saw equal declines against the sterling and the yen which both advanced 0.14% on the session. Stronger than expected UK retail sales figures provided some support for the pound which has fallen more than 1.9% this week, while risk aversion trades propped up the yen as traders continued to fade last month’s intervention advance. We continue to note that although the USD/JPY pair is likely to continue lower, losses are likely to be tempered as traders remain on intervention watch.

Tomorrow’s economic docket is rather quiet with only the October leading indicators on tap. Consensus estimates call for a print of 0.6%, up from a previous read of 0.2% in September. With extremely light data flow tomorrow, dollar price action will continue to be driven by broader market sentiment as nervous investors remain focused on headlines coming out of Europe. Although the medium-term outlook for the greenback remains bullish, the dollar could come under pressure in the interim as market exhaustion sets in ahead of the weekend.

Upcoming Events

Date

GMT

Importance

Release

Expected

Prior

11/18

15:00

MEDIUM

Leading Indicators (OCT)

0.6%

0.2%

--- Written by Michael Boutros, Currency Analyst with DailyFX.com

To contact Michael emailmboutros@dailyfx.comor follow him on Twitter @MBForex.

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17 November 2011 23:20 GMT