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Forex: Euro Slide Continues; Japanese Yen Rebounds on US Fiscal Concerns

Forex: Euro Slide Continues; Japanese Yen Rebounds on US Fiscal Concerns

2012-11-28 12:30:00
Christopher Vecchio, CFA, Senior Strategist
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ASIA/EUROPE FOREX NEWS WRAP

For the second day in a row, the Australian, Canadian, and New Zealand Dollars have remained resilient despite a sell-off in the European currencies and equity markets, perhaps a sign of improving global growth prospects despite uneasiness elsewhere. With European concerns lingering – once again after a “resolution” was reached, with leaders spinning it as a monumental moment for all European s – the Euro has taken the lion’s share of punishment the past two days, despite notable improvement in Italian and Spanish bond yields (see below).

Accentuating the uneasiness today were comments made yesterday by Senate Majority Leader Harry Reid, a pro-tax hike Democrat, who called the lack of progress made the past eleven days on the fiscal cliff/slope or so “discouraging.” This has perhaps aided the commodity currencies in their relative state of levitation (compared to the European currencies’ sinking feeling). But the big winner has been the Japanese Yen, which has rebounded off of its November lows across the board as investors seek safety outside of the US Dollar.

But this notion of the fiscal cliff/slope being a definite occurrence is far-fetched despite the “discouraging” lack of progress made. Where’s the real progress? Stringent anti-tax hike Republicans reneging on promises to never increase government revenues, as politicians backpedal away from the very policies that cost them the Presidency, the Senate, and a few seats in the House of Representatives. This sensibility being displayed gives hope that at least a bridge agreement will be made, to give the new Congress time to hammer out the details over the first half of the year.

Taking a look at European credit, peripheral bond yields have continued to deteriorate, decoupling further from weakness in the Euro and European equity markets. The Italian 2-year note yield has decreased to 1.912% (-2.1-bps) while the Spanish 2-year note yield has decreased to 2.724% (-11.6-bps). Similarly, the Italian 10-year note yield has decreased to 4.668% (-4.5-bps) while the Spanish 10-year note yield has decreased to 5.410% (-8.1-bps); lower yields imply higher prices.

RELATIVE PERFORMANCE (versus USD): 12:05 GMT

JPY: +0.33%

NZD: +0.07%

CAD:+0.01%

AUD:-0.04%

GBP:-0.22%

EUR: -0.26%

CHF:-0.36%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.44% (+0.06% past 5-days)

ECONOMIC CALENDAR

Forex_Euro_Slide_Continues_Japanese_Yen_Rebounds_on_US_Fiscal_Concerns_fx_news_currency_trading_technical_analysis_body_Picture_7.png, Forex: Euro Slide Continues; Japanese Yen Rebounds on US Fiscal Concerns

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

TECHNICAL ANALYSIS OUTLOOK

Forex_Euro_Slide_Continues_Japanese_Yen_Rebounds_on_US_Fiscal_Concerns_fx_news_currency_trading_technical_analysis_body_Picture_6.png, Forex: Euro Slide Continues; Japanese Yen Rebounds on US Fiscal Concerns

EUR/USD: The pair has broken back below 1.2900, but my bias remains neutral, awaiting resolution of 1.3010/20 to the upside and 1.2800/40 to the downside. Below, support comes in at 1.2740/45. Above, resistance is 1.3140/45.

Forex_Euro_Slide_Continues_Japanese_Yen_Rebounds_on_US_Fiscal_Concerns_fx_news_currency_trading_technical_analysis_body_Picture_5.png, Forex: Euro Slide Continues; Japanese Yen Rebounds on US Fiscal Concerns

USD/JPY: No change from Monday: “While the Evening Star candle cluster has failed to materialize, the Doji / Shooting Star candle on Wednesday, when considered alongside the daily RSI starting to contract from its already-overbought levels, the USD/JPY looks near-term bearish. 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_Euro_Slide_Continues_Japanese_Yen_Rebounds_on_US_Fiscal_Concerns_fx_news_currency_trading_technical_analysis_body_Picture_4.png, Forex: Euro Slide Continues; Japanese Yen Rebounds on US Fiscal Concerns

GBP/USD: The GBP/USD failed at long-term trendline resistance at 1.6035/55 (descending trendline resistance off of the April 2011 and April 2012 highs), despite tentatively breaking a downtrend that’s been in place for the past two months. It seems that the pair is due for a a retest of former resistance at 1.5975; and ensuing bounce would strengthen the case for a run back towards 1.6300. Resistance comes in at 1.6170/80 (late-October highs). Support is 1.5960/75 (20-EMA, 50-EMA), 1.5905/10 (100-DMA), and 1.5855/60 (200-DMA).

Forex_Euro_Slide_Continues_Japanese_Yen_Rebounds_on_US_Fiscal_Concerns_fx_news_currency_trading_technical_analysis_body_Picture_3.png, Forex: Euro Slide Continues; Japanese Yen Rebounds on US Fiscal Concerns

AUD/USD: As the pair has traded towards its Symmetrical Triangle termination point, and appears to be making a move to the upside; when considered in the big picture, the current pause witnessed the past year or so may be viewed as a consolidation. Support is at 1.0370/1.0405 (trendline support off of the June 1 and October 23 lows) and 1.0235/80. Resistance is 1.0475/80 (November high) and 1.0500/15.

Forex_Euro_Slide_Continues_Japanese_Yen_Rebounds_on_US_Fiscal_Concerns_fx_news_currency_trading_technical_analysis_body_Picture_2.png, Forex: Euro Slide Continues; Japanese Yen Rebounds on US Fiscal Concerns

S&P 500: No change: “The rally off of the 61.8 Fibonacci retracement (June 2012 low to September 2012 high) has carried the S&P 500 back into a confluence of resistance at 1400/10 (20-EMA, 50-EMA, 100-EMA). A breakout above this area would suggest a more substantial rebound may yet be ahead. Support comes in at 1385 (200-DMA) and 1345/50 (November low). Resistance comes in at 1425 and 1460.”

Forex_Euro_Slide_Continues_Japanese_Yen_Rebounds_on_US_Fiscal_Concerns_fx_news_currency_trading_technical_analysis_body_Picture_1.png, Forex: Euro Slide Continues; Japanese Yen Rebounds on US Fiscal Concerns

GOLD: No change: “Fresh November highs are in place after Friday’s rally, and with the US fiscal cliff/slope negotiations grinding slower, there may be some upside yet. I still expect the 1700 area to be defended vigorously on declines, and will continue to look to get long as low as 1675. Resistance is 1755/58 and 1785/1805. Support is 1735, 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

Follow him on Twitter at @CVecchioFX

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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