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US Dollar Plummets as Renewed Risk Appetite Supports High Yielders

US Dollar Plummets as Renewed Risk Appetite Supports High Yielders

2011-10-27 13:41:00
Michael Boutros, Technical Strategist
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Daily Winners and Losers

US_Dollar_Plummets_as_Renewed_Risk_Appetite_Supports_High_Yielders__body_Picture_2.png, US Dollar Plummets as Renewed Risk Appetite Supports High Yielders US_Dollar_Plummets_as_Renewed_Risk_Appetite_Supports_High_Yielders__body_Picture_3.png, US Dollar Plummets as Renewed Risk Appetite Supports High Yielders US_Dollar_Plummets_as_Renewed_Risk_Appetite_Supports_High_Yielders__body_Picture_4.png, US Dollar Plummets as Renewed Risk Appetite Supports High Yielders

The Australian dollar was the top performer in pre-market trade as risk appetite saw a substantial pick up on optimism regarding the European rescue package and strong US data. Although the plan to shore up banks and stem the threat of contagion it does little to address the structural problems facing the region, the package does buy the Europeans time while averting an imminent default. Accordingly, concerns have eased with investors going back on the hunt for yields. As the highest yielding currency out of the majors, the aussie stands as the chief beneficiary of risk-on flows with the AUD/USD surging in overnight trade. The pair broke above the 61.8% Fibonacci extension taken from the October 18th and 26th troughs at 1.0555 before encountering resistance at the September 8th high at 1.0660. A likely break here eyes topside targets at the 100% extension at the 1.07-handle backed b 1.0760. Interim support rests at the 76.4% extension at 1.0610 backed by 1.0550 and the 50% extension at 1.0510. With no data on tap for the rest of the week out of Australia, broader market sentiment will continue to drive aussie price action.

Key Levels/Indicators

Level/Indicator

Level

100-Day SMA

1.0435

50-Day SMA

1.0233

20-Day SMA

1.0089

2011 AUD High

1.1079

US_Dollar_Plummets_as_Renewed_Risk_Appetite_Supports_High_Yielders__body_Picture_5.png, US Dollar Plummets as Renewed Risk Appetite Supports High Yielders US_Dollar_Plummets_as_Renewed_Risk_Appetite_Supports_High_Yielders__body_Picture_6.png, US Dollar Plummets as Renewed Risk Appetite Supports High Yielders

The sterling was the weakest performer against the greenback with an advance of just 0.35% at the US open. The pound has continued to lag the majors despite substantial dollar weakness with the GBP/USD failing multiple attempts at breaching the 1.6040 resistance level. The outlook for the sterling remains weighted to the upside however after breaking above significant long-term resistance and the 100-day moving average at 1.6033. A likely break at 1.6040 eyes topside targets at 1.6080 backed by the 161.8% Fibonacci extension taken from October 11th and 18th troughs at 1.6125. Interim support holds at the 1.5980 mark with subsequent floors seen at the 100% extension at 1.5940, the 1.59-figure, and the 76.4% extension at 1.5865. Traders will be eyeing data out of the UK overnight with the GfK consumer confidence survey on tap.

Key Levels/Indicators

Level/Indicator

Level

100-Day SMA

1.6033

50-Day SMA

1.5866

20-Day SMA

1.5727

2011 GBP High

1.6745

Upcoming Events

Date

GMT

Release

Expected

Previous

10/27

23:01

GfK Consumer Confidence Survey (OCT)

-30

-30

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

To be added to Michael’s email distribution list, send an email with subject line “Distribution List” to mboutros@dailyfx.com

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