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Forex: US Dollar Weakest on Friday; Euro Up After German Data, ECB Speak

By , Currency Analyst
23 November 2012 12:15 GMT

ASIA/EUROPE FOREX NEWS WRAP

The final day of the three day liquidity drawdown has arrived, and price action on Friday has been moderately bullish for high beta currencies and risk-correlated assets. There’s been decent follow-through on yesterday’s advances by the Australian and New Zealand Dollars, as well as the Japanese Yen and the Euro, as the US Dollar is the worst performing currency across the board.

Mainly, there’s been some positive news flow out of Europe allowing for the continued rebound in risk-appetite, as any such headlines out of the United States are absent amid the Thanksgiving holiday. On the data front, a German business confidence reading outperformed expectations, helping ease concerns that the Euro-zone’s largest economy was starting to slide towards recession; perhaps this pace has been stalled.

On the European news side, there have been a few more reports that Spain is inching towards a bailout agreement, which is bullish for the EUR/USD has it means the European Central Bank’s OMTs would be active, essentially placing a cap on short-term Spanish yields. ECB President Mario Draghi reminded market participants of this today, saying ‘if and when’ (paraphrasing) the OMTs need to be implemented, the ECB stands ready to go.

Furthermore, the developments on Greece have been frustrating yet hopeful, with another Euro-zone finance ministers’ meeting on November 26. Round the clock negotiations this week fell short of any major compromise, although it was agreed upon that Greece would receive another two years to fulfill its obligations; another round of elections resulting from brinksmanship could be a major setback.

Taking a look at European credit, peripheral bond yields are mostly higher, preventing the Euro from rallying further. The Italian 2-year note yield has decreased to 1.977% (-3.3-bps) while the Spanish 2-year note yield has increased to 2.983% (+1.0-bps). Similarly, the Italian 10-year note yield is unchanged at 4.771% while the Spanish 10-year note yield has increased to 5.648% (+2.3-bps); higher yields imply lower prices.

RELATIVE PERFORMANCE (versus USD): 11:46 GMT

JPY: +0.29%

NZD:+0.25%

EUR:+0.13%

AUD:+0.11%

CHF: +0.09%

GBP:+0.05%

CAD: +0.03%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.14% (-0.18% past 5-days)

ECONOMIC CALENDAR

Forex_US_Dollar_Weakest_on_Friday_Euro_Up_After_German_Data_ECB_Speak_body_Picture_7.png, Forex: US Dollar Weakest on Friday; Euro Up After German Data, ECB Speak

See the DailyFX Economic Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.

TECHNICAL ANALYSIS OUTLOOK

Forex_US_Dollar_Weakest_on_Friday_Euro_Up_After_German_Data_ECB_Speak_body_Picture_6.png, Forex: US Dollar Weakest on Friday; Euro Up After German Data, ECB Speak

EUR/USD: The stall at the confluence of resistance at 1.2800/30 (20-EMA, 50-EMA, 100-DMA, last week’s high, mid-October swing low) gave way, coupled with a breakout of the daily RSI above 50. Now, the pair looks bullish again in the near-term. Support comes in at 1.2800/30 and 1.2740/45(weekly low). Resistance is, 1.2880/1.2900 (breaking now), and 1.3015/20 (late-October high).

Forex_US_Dollar_Weakest_on_Friday_Euro_Up_After_German_Data_ECB_Speak_body_Picture_5.png, Forex: US Dollar Weakest on Friday; Euro Up After German Data, ECB Speak

USD/JPY: On Tuesday I said: “With 81.75 broken, the next levels to like higher to are the late-March highs at 83.20/35. As noted yesterday, however, with the daily RSI overbought once more, the next corrective leg may be around the corner.” Indeed, after a Doji / Shooting Star candle on Wednesday coupled with further downside today, the USD/JPY is working on a potential Evening Star candle cluster (as noted on the chart above), which is a bearish reversal pattern. Coinciding with this is the daily RSI starting to contract from its already-overbought levels. Support comes in at 81.75, 81.15, and 80.50/70 (former November high). Resistance is 82.90/83.00 and 83.30/55.

Forex_US_Dollar_Weakest_on_Friday_Euro_Up_After_German_Data_ECB_Speak_body_Picture_4.png, Forex: US Dollar Weakest on Friday; Euro Up After German Data, ECB Speak

GBP/USD: No change: “The downtrend that’s been in place for the past two months remains, though the GBPUSD finds itself hold both its 100-DMA and 200-DMA on recent declines, suggesting the medium-term trend is to the upside. Resistance comes in at 1.5950/55 (20-EMA), 1.5970/75 (50-EMA) and 1.6170/80 (late-October highs). Support is 1.5890/95 (100-DMA), 1.5850/55 (200-DMA), and 1.5800/05.”

Forex_US_Dollar_Weakest_on_Friday_Euro_Up_After_German_Data_ECB_Speak_body_Picture_3.png, Forex: US Dollar Weakest on Friday; Euro Up After German Data, ECB Speak

AUD/USD: More range-bound price action as the AUD/USD is wedged between rising trendline support and stubborn quarterly highs just below 1.0500. Accordingly, my levels remain unchanged. Support is at 1.0350/60 (trendline support off of the June 1 and October 23 lows) and 1.0235/80. Resistance is at 1.0405/50 (former swing highs and lows), 1.0475/80 (November high) and 1.0500/15.

Forex_US_Dollar_Weakest_on_Friday_Euro_Up_After_German_Data_ECB_Speak_body_Picture_2.png, Forex: US Dollar Weakest on Friday; Euro Up After German Data, ECB Speak

S&P 500: No change: “The key support noted for the past several weeks at 1350/65 has held. Although this is a broad zone, with multiple points of inflection occurring in this area, we know it will be an area in which buyers and sellers are looking at the market. If this breakdown is legitimate, then a healthy corrective rebound back towards 1380/85, 1400, and even 1420 could be possible. Support comes in at 1350/65 (monthly S2, ascending channel support off of November 2011 and June 2012 lows). Resistance comes in at 1383 (200-DMA) and1400/10 (20-EMA, 50-EMA, 100-EMA).” It’s worth noting that the S&P 500 found support at the 61.8% Fibonacci on the June 2012 low to the September 2012 high at 1345; this suggests the overall uptrend may be intact.

Forex_US_Dollar_Weakest_on_Friday_Euro_Up_After_German_Data_ECB_Speak_body_Picture_1.png, Forex: US Dollar Weakest on Friday; Euro Up After German Data, ECB Speak

GOLD: Nothing has changed over the past four weeks, so neither has my bias: “Gold has consolidated just below its November highs, though considering that the US Dollar is at its strongest level in over two months, Gold is holding up well. As such, I still expect the 1700 area to be defended vigorously, and look to get long as low as 1675. Resistance is 1735, 1755/58 and 1785/1805. Support is 1700, 1685/90 (100-DMA, November low), and 1660/65 (200-DMA).”

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

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23 November 2012 12:15 GMT