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Risk Rally Falters as LTRO Euphoria Subsides- Loonie Advances Limited

Risk Rally Falters as LTRO Euphoria Subsides- Loonie Advances Limited

2011-12-21 19:10:00
Michael Boutros, Technical Strategist
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Daily Winners and Losers

Risk_Rally_Falters_as_LTRO_Euphoria_Subsides-_Loonie_Advances_Limited_body_Picture_2.png, Risk Rally Falters as LTRO Euphoria Subsides- Loonie Advances LimitedRisk_Rally_Falters_as_LTRO_Euphoria_Subsides-_Loonie_Advances_Limited_body_Picture_3.png, Risk Rally Falters as LTRO Euphoria Subsides- Loonie Advances LimitedRisk_Rally_Falters_as_LTRO_Euphoria_Subsides-_Loonie_Advances_Limited_body_Picture_4.png, Risk Rally Falters as LTRO Euphoria Subsides- Loonie Advances Limited

The loonie is the top performing currency against the dollar with an advance of 0.27% in afternoon trade in New York. Strong risk appetite in pre-market trade quickly faded after the ECB’s Long Term Refinancing Operation or LTRO drew much stronger demand than expected with a total of 523 banks devouring nearly €490 billion in three-year loans at just 1.0%. Hopes of these institutions to purchase sovereign debt were fueled on Monday when ECB President Mario Draghi cited that although the central bank would not back-stop sovereigns, they would continue to ensure liquidity in the banking sector, who could in turn purchase sovereign debt. While the initial knee-jerk reaction saw risk assets outperform, broader market sentiment quickly shifted as the sheer size of the offer suggested that the European crisis may be worse off than anticipated.

Helping support the loonie are higher crude prices and retail sales data that topped estimates with a print of 1.0% m/m, well surpassing expectations for a read of just 0.5%. The USD/CAD continues to hold within the confines of a descending channel formation dating back to December 15th with Interim support resting at 1.0270. A break here eye subsequent floors at 1.0240 and the 23.6% Fibonacci extension taken from the October 27th and December 8th troughs at the 1.02-handle. Interim resistance stands at the 38.2% extension at 1.0295 followed by 1.0335 and the 50% extension at 1.0365. Our medium-term bias remains weighted to the topside as ongoing concerns regarding the deepening European crisis and a tax debate deadlock in Washington fuel haven flows into the reserve currency.

Key Levels/Indicators

Level/Indicator

Level

100-Day SMA

1.0107

50-Day SMA

1.0209

20-Day SMA

1.0276

2011 CAD High

0.9406

Risk_Rally_Falters_as_LTRO_Euphoria_Subsides-_Loonie_Advances_Limited_body_Picture_5.png, Risk Rally Falters as LTRO Euphoria Subsides- Loonie Advances LimitedRisk_Rally_Falters_as_LTRO_Euphoria_Subsides-_Loonie_Advances_Limited_body_Picture_6.png, Risk Rally Falters as LTRO Euphoria Subsides- Loonie Advances Limited

The Swiss franc is the weakest performing currency against the greenback with a loss of more than 0.24% on the session. The franc has been on the offensive as of late after last week’s SNB rate decision cited no remarks about possibly lifting the EUR/CHF peg which currently stands at 1.20. Accordingly the swissie continued to advance as intervention concerns subsided.

The USD/CHF broke below channel support dating back to the October 27th low with the pair rebounding off the 23.6% Fibonacci extension taken from the October 27th and November 30thtroughs at 0.9245 in overnight trade. Interim resistance stands at the 38.2% extension at 0.9355 with subsequent ceilings seen at the 0.94-figure,the 50% extension at 0.9445, and 0.9470. Interim support rests at 0.9320 backed by 0.9275, the 23.6% extension at 0.9245 and 0.9215. We remain neutral on this pair at these levels noting that a break above the 50% extension likely to shift our bias to the topside.

Key Levels/Indicators

Level/Indicator

Level

100-Day SMA

0.8716

50-Day SMA

0.9077

20-Day SMA

0.9261

2011 CHF High

0.7079

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

To contact Michael email mboutros@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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