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Key Levels Broken - Will Dollar Fall Further?

Last updated 11/25/2009 5:55 AM ET (GMT -5) 1 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• China tightens caoital controls to stem specs on yuan appreciation
• Gold another record high o reports that India CB will buy more
• Asian and Europen both higher by about 50bps
• OIl at $77.46 last
• Gold hits new highs at $1180/oz.

Overnight Eco

• JPY Trade Balance 42T vs. 31T
• JPY CSPI -2.2% vs. -2.5%
• AUD Construction Work Done 2.2% vs. 0.1%
• EUR GfK German Consumer Climate 3.7 vs. 4.2
• GBP Nationwide HPI n/a
• GBP Revised GDP -0.3% vs, -0.4% last
• GBP Index of Services -0.1% vs. 0.0% eyed

Event Risk on Tap

• CAD Corporate Profits
• USD Unemployment Claims expected at 500K
• USD Durable Goods Orders expected at 0.5%
• USD Personal Spending expected at 0.6%
• USD Personal Income expected at 0.2%
• USD Revised UoM Consumer Sentiment expected at 67.2
• USD New Home Sales expected at 408K

Price Action

• USD/JPY targets 88.00 on broad dollar weakness but so far the handle holds
• AUD/USD back to 93.00 as data and dollar selling helps
• GBP/USD rallies to 1.6700 but GDP revision disappoints
• EUR/USD above 1.5000 despite weaker data 1.5050 now key

Risk FX resumed its rally in Asian and early European trade today with stop running rampant across all major pairs as key levels gave way on the back of the breakdown in the dollar index and fresh record highs in gold. Gold rose to $1180/oz in the aftermath of a report that the Bank of India will add further to its current gold reserves, sparking a new round of dollar selling on fears of more CB reserve diversification.

The dollar index broke the psychologically important 75.00 level while  EUR/USD finally took out the 1.5000 level with conviction and USD/JPY broke the 88.00 handle slipping all the way to 87.50 before bargain hunters stabilized the decline.  For the past few days the market has been skittish about  breaking the 1.5000 EUR/USD figure given the massive amount of optionality outstanding, but better economic data in the form of IFO and renewed waves of anti-dollar sentiment finally pushed the euro higher taking out those barriers.

The next few days of liquidity starved trading could  send EUR/USD higher on momentum flows alone, but we remain cautious of being too bullish on the pair until 1.5050  is broken to the upside opening the way for a run to 1.5200.  

Meanwhile on the economic front UK GDP data saw a better revision to -0.3% from -0.4% initially reported, but the news was less positive than the market had anticipated. As we wrote earlier,” The near term momentum still favors the upside (in GBP/USD) especially if anti-dollar sentiment continues for the rest of the day. On a broader horizon however, the 1.7000 area remains a cement ceiling for the pair and today’s release will do little to help the bull case for now. Furthermore, if the next batch UK economic statistics begins to disappoint, it could confirm the bear argument that for the time being UK recovery remains elusive and pound weakness will return with a vengeance as markets begin to consider the possibility of more stimulus and QE.”

In North America today, the focus turns to Durable Goods and weekly jobless claims data with market looking for a decline in Durable to 0.5% and a 500K in jobless claims. If the weekly number breaks below the critical 500K level and further if  the new Home sales data due at 15:00GMT beats to the upside, risk flows should continue with dollar weakness persisting into the Thanksgiving holiday. Having taken out the key levels, dollar bears have momentum on their side and are now just looking for some further funda catalyst to help push risk currencies even higher.

Note: no report until Friday. Happy T-day all.

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Comments (1)

amm

November 25, 2009 at 07:43 AM ET

Boris

Thanks.
Happy T-day

Regards
Ahmad

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.