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Dollar Surges on Risk-Off Flows- Aussie Plummets on China, Europe

Dollar Surges on Risk-Off Flows- Aussie Plummets on China, Europe

2011-05-23 14:01:00
Michael Boutros, Technical Strategist
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Dollar_Surges_on_Risk_Off_Flows_Aussie_Plummets_on_China_Europe_body_Picture_2.png, Dollar Surges on Risk-Off Flows- Aussie Plummets on China, EuropeDollar_Surges_on_Risk_Off_Flows_Aussie_Plummets_on_China_Europe_body_Picture_3.png, Dollar Surges on Risk-Off Flows- Aussie Plummets on China, EuropeDollar_Surges_on_Risk_Off_Flows_Aussie_Plummets_on_China_Europe_body_Picture_4.png, Dollar Surges on Risk-Off Flows- Aussie Plummets on China, Europe

Broad based dollar strength accompanied the aggressive risk aversion flows that carried over into the US open today. The yen saw the smallest declines against the dollar in pre-market trade, sliding just 0.15% after testing the lower bound trendline of the ascending channel that has held the pair since May 5th. Topside resistance for the USD/JPY is eyed at the 82-handle, with subsequent ceilings seen at 82.20 and 82.40. Interim support rests at the 23.6% Fibonacci extension taken from the March 16th and May 5th troughs at 81.70, backed by 81.50. A break of the lower bound trendline, currently at 81.30 sees downside targets at the 81-figure and 80.70. The pair should be well supported here throughout North American trade as risk appetite remains on the defensive and equity losses deepen.

Key Levels/Indicators

Level/Indicator

Level

50-Day SMA

81.94

20-Day SMA

81.12

10-Day SMA

81.25

2011 Low

76.34

Dollar_Surges_on_Risk_Off_Flows_Aussie_Plummets_on_China_Europe_body_Picture_5.png, Dollar Surges on Risk-Off Flows- Aussie Plummets on China, EuropeDollar_Surges_on_Risk_Off_Flows_Aussie_Plummets_on_China_Europe_body_Picture_6.png, Dollar Surges on Risk-Off Flows- Aussie Plummets on China, Europe

The Australian dollar was the worst performer against the greenback overnight as commodity prices and risk-off trades slammed high-yielding assets. The aussie was especially hard-hit after a report showed China’s manufacturing index fell to 51.1 in May, compared to the 51.8 a month earlier. Concerns over a slowdown in Australia’s largest trade partner coupled with newly ignited fears over contagion in Europe saw traders jettison risk-assets in favor of the greenback which surged in pre-market trade. The aussie should encounter strong support at the 1.0500-figure, with subsequent floors seen at the 61.8% Fibonacci extension taken from the May 11th and 20th crests at 1.0475 and 1.0450. Relative strength suggests the pair may be oversold at these levels, with topside intra-day resistance seen at 1.0540, at the 38.2% Fib extension at 1.0560, and the 1.0600-handle. With no data on today’s economic docket, FX flows will be particularly vulnerable to news headlines from Europe after last week’s downgrade of Italy and Greece’s credit rating re-kindled concerns over a possible default in the peripheries.

Key Levels/Indicators

Level/Indicator

Level

50-Day SMA

1.0641

20-Day SMA

1.0727

10-Day SMA

1.0500

2011 Low

0.9716

Written by Michael Boutros, Currency Analyst for DailyFX.com

To contact the author of this report or to subscribe to his daily analysis please sends inquiries to:mboutros@dailyfx.com

You can also follow Michael on Twitter @MBForex

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

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