USD Rally Looking to Pick Up Steam; Euro Stands Out As Weakest Currency

Contributed By: DailyFx

Markets are set to get back to some fuller and normal trade post the Thanksgiving holiday, although there has been no change to the recent trend of broad based USD demand. As we head into the North American open, the Euro remains under intense pressure, with leveraged and macro funds now adding to short Euro positions and helping to open an acceleration of declines towards the 200-Day SMA by 1.3130. The news of progress over the weekend on the Irish bailout has failed to inspire and real confidence in the region, and fears of contagion are running as high as ever. Attempts from various officials to downplay the threat of contagion have fallen on deaf ears, and instead market participants are paying closer attention to warnings from famed economist and doom and gloomer Roubini, who talks of Portuguese and Spanish bailouts as well.

Relative Performance Versus USD Monday (As of 11:45GMT)

1. SWISSIE+0.21%
2. CAD +0.13%
3. STERLING+0.01%
4. YEN-0.02%
5. AUSSIE-0.07%
6. KIWI-0.11%
7. EURO-0.49%

The Euro has clearly been the hardest hit on the day as a result, with a mixed bag of data out of the region only helping to fuel additional weakness. Interestingly enough, the other major currencies are less affected and are locked in more of a consolidation from recent setbacks. Perhaps the slightly higher US equity futures and bid oil prices have helped to keep the other major currencies somewhat supported. Gold on the other hand remains offered and tracks moderately lower on the day.

Also released in European trade was a batch of UK data which was on the whole better than expected, although UK house price data released earlier in the day produced a decline which resulted in the largest annual fall since December 2009. Data released in Asia saw Japanese retail sales drop in October to put in the second straight monthly fall. Meanwhile, Australian economic releases produced varying results, with new home sales coming in quite healthy, while company profits unexpectedly dropped in the third quarter which was much weaker than analysts had been forecasting. Finally, in New Zealand, data was on the whole quite solid with a better than expected trade surplus and improvement in business confidence.

Looking ahead, it is a batch of Canadian data that kicks things of for North American trade, with the Canadian current account (-15.2B expected), industrial product prices (0.2% expected) and raw material prices (0.8% expected) due out at 13:30GMT, followed by Dallas Fed manufacturing (3 expected) at 15:30GMT. On the official circuit, Fed Bullard is slated to speak at 18:30GMT.

GRAPHIC REWIND

TECHS

EUR/USD: We have finally reached a critical inflection point, with the market now testing and breaking some major rising trend-line support off of the 2010 lows, which comes in by the 1.3200's. A sustained break below 1.3200 over the coming days will suggest that the market has broken a major uptrend and is on the verge of a material shift in the structure favoring additional USD gains, while inability to establish below 1.3200 will keep the bullish trend intact. Daily studies certainly show room for additional declines from here, so we would not at all be surprised to see a sustained break below the trend-line. Next key support comes in by the 200-Day SMA at 1.3130, with the 50% fib retrace off of the 2010 low-high move just below at 1.3085. Look for any inter-day rallies to be well capped around 1.3500, with only a break back above 1.3635 to really give reason for concern.

USD/JPY: Although the market is locked in a broader downtrend, there are definitely clear signs emerging that we could finally be on the verge of a major shift in the structure. The price has not managed a close above the daily Ichimoku cloud since May, and the latest break back above the cloud suggests that we are in fact in the process of undergoing a shift in the trend. However, the market is only just now breaking above the cloud, and with the 100-Day SMA (84.10) still capping gains, we would recommend waiting for a clearer and sustained break above these 2 indicators for official bullish confirmation. On the other hand, the bottom of the cloud currently comes in by the 82.00 figure and a close back below here would be required to signal bearish resumption. As such, we are now in a wait and see period and will stand aside to let things play out. It is worth noting that longer-term studies are quite stretched with the market by cyclical lows, and as such, our core bias and outlook for the pair is constructive.

GBP/USD: A rising trend-line off of the yearly lows has now been convincingly broken to the downside, and the risks from here are for deeper setbacks towards 1.5300 over the coming days. Latest support by 1.5650 has now been broken and the close below this level should help to confirm bearish bias and accelerate declines. Ultimately, only back above 1.6300 would compromise medium-term structure and give reason for concern. Look for inter-day rallies to be well capped ahead of 1.5900.

USD/CHF: We contend that the market is in the process of carving a material base by 0.9460, and any setbacks should be very well supported in favor of a sustained recovery. A fresh higher low has now been confirmed by 0.9550 following the latest break back above 0.9975, and the market should now accelerate beyond parity towards our next key topside objective in the 1.0280-1.0500 area over the coming sessions. The 1,0280 resistance represents the highs from September, while 1.0500 is the 200-Day SMA. Any intraday setbacks are expected to be well supported ahead of 0.9700.

FLOWS

Model, leveraged and macro names all on the offer in Eur/Usd. Positive M&A related flows in GBP. Official bids reported in Eur/Chf. Various US banks reported to be on the offer in the commodity bloc. Good two-way action in Usd/Jpy.

TRADE OF THE DAY
EUR/AUD: Even with all of the negative attention surrounding the Eurozone, we think that the Australian Dollar is just as much if not more at risk going forward, with the fear of a further deterioration in the global economy likely to accelerate safe haven buying and carry liquidation. This on top of the fact that the RBA Stevens has been out with some out of character dovish comments on the Australian economy should help to fuel the relative Aussie weakness going forward. Technically, the cross sits by multi-year lows with a monthly RSI that is highly oversold and well below 30. As such, we like the idea of taking advantage of an oversold intraday move into previous hourly resistance now turned support, with the daily ATR also met, to establish a playable counter-trend long position. STRATEGY: BUY @1.3630 FOR AN OPEN OBJECTIVE; STOP 1.3530. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM NY) ON MONDAY.