Forex Analysis: US Dollar Classic Technical Report 11.09.2012

US DOLLAR INDEX: Prices continue to flirt with 9963, the 38.2% Fibonacci retracement. Support is reinforced by a rising trend line set from the October 17 low (9933). A drop below this barrier aims for a support cluster in the 9861-85 area. Channel resistance is at 10006, with a break above that aiming for the 50% Fib at 10032.

— Written by Ilya Spivak, Currency Strategist for Dailyfx.com

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BANGKOK (AP) — World stock markets were mixed Thursday, with Asian markets supported by a pickup in China's factory production ahead of the release of manufacturing and services sector data in Europe.

BANGKOK (AP) — World stock markets were mixed Thursday, with Asian markets supported by a pickup in China's factory production ahead of the release of manufacturing and services sector data in Europe.

Stocks in Europe were mostly lower in early trading. Britain's FTSE 100 was nearly unchanged at 6,198.64. Germany's DAX fell 0.3 percent to 7,684.14 and France's CAC-40 shed 0.2 percent to 3,718.97. Wall Street appeared headed for a day of muted trading, with Dow Jones industrial futures barely changed at 13,721 while S&P 500 futures fell 0.3 percent to 1,486.

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Stock markets in Asia got a boost from HSBC Bank's preliminary survey on China's monthly manufacturing. Its index rose to a two-year high of 51.9 in January from 51.5 in December. A reading above 50 indicates expansion on a scale of 100.

Analysts at Credit Agricole CIB in Hong Kong said before the survey's release that they expected China to beat estimates. "Manufacturing sentiment should have been boosted by previous fiscal measures and optimism towards the new government" following the once in a decade leadership change late last year, the bank said in an email.

Japan's Nikkei 225 index rose 1.3 percent to close at 10,620.87. Australia's S&P/ASX 200 advanced 0.5 percent to 4,810.20, its highest close since May 2011. Benchmarks in Singapore, Thailand, and the Philippines also rose.

Hong Kong's Hang Seng lost 0.2 percent to 23,598.80 and mainland Chinese shares also fell. However, analysts said the losses were due to profit-taking after recent rallies, not disappointment with China's manufacturing numbers.

"The stock markets already shot up a lot," said Linus Yip, strategist at First Shanghai Securities in Hong Kong. "It's just some profit-taking." South Korea's Kospi fell 0.8 percent to 1,963.69 after the Bank of Korea said the country's economy expanded 0.4 percent in the final three months of last year, falling short of the bank's 0.8 percent growth forecast.

Investors were encouraged by developments in Washington, where the U.S. House of Representatives voted to avert the imminent threat of a government default by suspending the debt limit — the amount of money the government is allowed to borrow.

The law requires that Congress approve raising the amount the government can borrow to pay its obligations as the debt exceeds its limit, currently at $16.4 trillion. That's the cumulative amount the country owes as a result of routinely spending more than it collects in taxes.

On Wednesday, IBM single-handedly lifted the Dow Jones industrial average to a five-year high. The tech giant's quarterly earnings beat Wall Street's expectations, thanks to its lucrative Internet-based "cloud" computing business and sales of software services.

Benchmark oil for January was up 25 cents to $95.48 per barrel in electronic trading on the New York Mercantile Exchange. The contract dropped $1.45, or 1.5 percent, to finish at $95.23 per barrel, the first decline of more than 1 percent since Dec. 21.

In currencies, the euro rose to $1.334 from $1.3321 late Wednesday in New York. The dollar rose to 89.53 yen from 88.66 yen.

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Forex: Quieter Wednesday Puts Focus on Trends – Eyes on GBP

ASIA/EUROPE FOREX NEWS WRAP

The Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) has continued to track lower today, mainly due to the continued unwind in USDJPY long positions. The commodity currencies are relatively weaker on Wednesday, as the 4Q’12 Australian CPI report released overnight showed diminishing price pressures, a typical sign of falling consumption. Naturally, this bodes poorly for the Aussie ahead of the Reserve Bank of Australia Rate Decision in two weeks; however, I would consider the strength of the Aussie in the 4Q’12 to be the catalyst for slower inflation, given the recent uptick in Chinese data (which is a positive for the Australian economy).

Although Europe has become a bit of a bore recently – the Euro-zone sovereign debt crisis is in the midst of its twilight phase, right before conditions begin to unwind again – the British Pound has certainly proven more exciting of recent. The UK economy is in the midst of another rough patch, with all indications suggesting that the 4Q’12 GDP release on Friday will show a quarterly contraction (marking a triple-dip recession) and flat growth on the year overall.

With British growth stagnate and fiscal authorities tightening the belt for upwards of twelve months (per Chancellor of Exchequer George Osborne, who suggested a few weeks back that austerity would have to continue for “at least” another year), stimulus, by and large, will have to come from the Bank of England. The BoE January meeting Minutes released today showed an 8-1 vote in favor of keeping the APT on hold at £375 billion; but with yearly inflation running high at +2.7%, more QE seems unlikely at present time. Instead, any stimulus is unlikely until mid-year, when Mark Carney replaces Mervyn King as Governor, which means that further pressure on the Sterling is likely as economic conditions continue to muddle.

Taking a look at European credit, peripheral yields are mostly lower, providing light support for the Euro. The Italian 2-year note yield has increased to 1.445% (+0.7-bps) while the Spanish 2-year note yield has decreased to 2.489% (-1.5-bps). Similarly, the Italian 10-year note yield has decreased to 4.169% (-2.1-bps) while the Spanish 10-year note yield has decreased to 5.057% (-4.2-bps); lower yields imply higher prices.

RELATIVE PERFORMANCE (versus USD): 11:45 GMT

JPY: +0.36%

NZD: +0.13%

EUR: +0.12%

CHF:+0.11%

GBP:+0.04%

CAD:+0.01%

AUD:-0.10%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.08% (+0.14% past 5-days)

ECONOMIC CALENDAR

See the DailyFX Economic Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.

TECHNICAL ANALYSIS OUTLOOK

EURUSD: No change: “the RSI downtrend that was broken last week was the clue for further strength. Accordingly, I maintain that “focus is on buying dips.” It now appears that a Bull Flag has formed on the daily chart, with a break above 1.3400/10 signaling a move towards 1.3485. Support comes in 1.3280/3310, 1.3120/45, 1.3090/95 (50-EMA), and 1.3000 (January low). Resistance is 1.3380/85 (mid-March swing high), 1.3400/10 and 1.3485 (late-February swing high).

USDJPY: The past few weeks I’ve maintained: “the market remains very net-short the JPY, so a near-term top marked by an event seems possible (think the US Dollar bottoming the day after QE3 was announced)).” This is playing out today, with the Yen as the top performer. Resistance comes at 89.10/35, 89.60/70 and 90.10/30 (monthly R2). Support comes in at 88.40 (monthly R1) and 87.00/40 (weekly pivot).

GBPUSD: No change as the pair steadies below its 200-DMA: “The pair has broken below ascending TL support off of the July and November lows at 1.6000. A weekly close below this level could accelerate losses through 1.5900/05 (200-DMA) towards the most recent swing low, at 1.5820/25 set in mid-November. Support is 1.5750 and 1.5825. Resistance comes in at 1.5900/10, 1.6000/10, 1.6070/75 (50-EMA), 1.6180, and 1.6300/10 (post-QE3 announcement high in mid-September).”

AUDUSD:No change: “The pair has broken the December highs and a break signals a push towards 1.0605/25. However, it’s worth noting that the daily RSI hasn’t pushed into overbought territory on any rally since February 2012. Accordingly, we’ll either see a move to new highs and with RSI confirming the breakout; or further consolidation/pullback is in order before the next leg higher. Support is at 1.0530/50 (weekly pivot, monthly R1), 1.0465/70 (weekly S1), and 1.0400/05 (weekly S2). Resistance is 1.0530/85 and 1.0605/25 (August and September highs).” It should be added that a weekly close below 1.0530 could signal a deeper retracement towards 1.0350/400.

S&P 500: Earlier last week I said: “The S&P 500is back above a very significant zone of 1445/50 (descending trendline off of September and October highs, 100% Fibonacci extension off of the November 16 low, the November 23 high, and the November 28 low extension), and a move higher necessarily points to 1470/75…Bull Flag is potentially forming on lower timeframes (1H, 4H).” With these levels to the upside breaking, a move above the September highs points to resistance at the 161.8% Fibonacci extension at 1492, 1500 and 1520/25 (December 2007 high). Support comes in at 1470/75, 1450/55, 1425, and 1400.

GOLD: The past few weeks I’ve maintained: “When considering the move off of the September highs, a measured A-B=C-D (as expressed on the Daily) suggests that a bottom could be in place at [1630/40].” The rebound has ensued, with the alternative safe haven rallying up to 1690 today. A daily close above 1700 points towards 1722/25 and 1755. Support is 1675 (20-EMA) and 1640/45.

— Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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