Markets Consolidate Ahead of NFP- USD Firms as Risk Appetite Subsides

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The euro is the top performing currency against a stronger dollar at noon in New York with an advance of 0.29% on the session. The single currency has remained rather resilient despite a reversal in the greenback which continues to pare some of the sharp declines seen over the past few days. The euro remained supported on reports that the Swiss government may look to implement a negative yield policy to deter market participants from investing in Swiss dominated assets in an effort to effectively easing monetary policy. The move saw the EUR/CHF pair surge with the EUR/USD holding its recent range in North American trade. The single currency is likely to come under pressure however as doubts arise regarding whether officials will be able to calm market fears next week as investors look to the ECB rate decision and the EU Summit where German Chancellor Merkel and French President Sarkozy are expected to reveal a new proposal on a so-called EU overhaul. The central bank is widely expected to cut interest rates again this month with Credit Suisse overnight swaps factoring in an 86% chance of a 25 basis point cut, with twelve month expectations calling for and additional 28basis points is cuts.

Accordingly our medium-term bias remains weighted to the downside noting interim resistance at the 38.2% Fibonacci extension taken from the October 27th and November 11th crests at 1.3515. Subsequent ceiling are seen higher at 1.3550, the 1.36-figure, and the 23.6% extension at 1.3630. Interim soft support rests at 1.3465 with an RSI break below trendline support eyeing targets at the 50% extension at 1.3425, the 1.34-handle, 1.3370, and the 61.8% extension at 1.3335.

Key Levels/Indicators

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The Australian dollar is the worst performing currency in afternoon trade with a decline of 0.58% against the greenback. After staging the sharpest three day rally in over three years, the aussie came under pressure in overnight trade after dismal building approvals and weaker than expected October retail sales weighed on sentiment, with the AUD/USD holding below the 1.03 handle which was tested yesterday in North American trade. As the risk rally subsides the aussie is likely to remain heavy as traders look to key employment data out of the US tomorrow with the much anticipated non-farm payroll report on tap.

Interim support for the pair rests at the 23.6% Fibonacci extension taken from the October 27th and November 11th crests at 1.0175 with subsequent floors seen lower at 1.0120, and the 38.2% extension at 1.0075. A break below this level risks further losses of the aussie with subsequent targets seen below parity at the 50% extension at 0.9990 and 0.9950. Topside resistance stands at the 1.03-figure backed by 1.0342, 1.0370, and the 1.04-figure.

Key Levels/Indicators

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

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