Forex - Structural Dollar Weakness Persists

Forex News and Events:

Despite the USD’s resurgence on Friday, a strong performance from Asian equity indices at the start of this week has quickly put the USD back under pressure, and one can’t help but feel that sideways range-trading could be stubbornly entrenched. Gold is providing the only decent spectacle in the market, as it rallies unfalteringly to $1167.82 highs so far, and seems determined to push straight on up to $1180-1200 topside targets seemingly without pause. The momentum clearly remains bullish for gold and other precious metals, meaning very few traders are either brave or reckless enough to go short just yet; nevertheless any short-term corrections could be brutal given the sheer speed of the recent ascent. After being starved of risk events in the latter part of last week, the coming few sessions offer a slight increase in activity, but only very slight. Today’s Eurozone PMI data showed a small uptick in both manufacturing and services components, but the upside surprises were not particularly overwhelming; and EURUSD’s climb higher this morning is on a par with most other currencies against the weakened USD. The first of this afternoon’s main releases will be Canadian Retail Sales where markets are looking for a 0.6% gain in September after the 0.8% rise the month prior. Although these figures have been relatively volatile recently, the downtrend in USDCAD remains firmly intact and any upside surprises in Canadian data coupled with ongoing USD weakness may prompt a revisit of 1.0420 support levels ahead of 1.0207 October lows. US Existing Home Sales rounds out the afternoon; but we believe that no US data release in isolation is going to be capable of turning around the trend of USD selling into year end. The release of the FOMC Minutes on Tuesday should give a more harmonized insight into the opinions of the voting members of the Fed committee after last week’s slew of comments from US officials. Nevertheless we feel there will be limited scope for surprises, and that structural USD weakness will be uninterrupted. Highlights in the remainder of the week will include BoE’s King and other MPC members giving testimony to the Treasury Committee on Tuesday, and the second estimate of UK Q3 GDP on Wednesday. After GBPUSD broke its 1-month uptrend the end of last week, markets will be acutely sensitive to any factors that imply the need for further QE or indeed serious consideration of a further reduction in deposit rates.

Today's Key Issues (time in GMT):

13:30 CAD Retail sales, % m/m Sep exp: 0.6 prev: 0.8
15:00 USD Existing home sales, % m/m Oct exp: 2.3 prev: 9.4

The Risk Today:

EurUsd EURUSD had been trading in a short-term downtrend since topping at 1.5047 on 11th Nov, but support held at 1.4800 after being tested several times, and today's USD weakness has seen a break of this downtrend around 1.4960 levels. The first attempt at resistance at 1.4990 has repelled a further rally for now, but a break above that level would eye 1.5063 (26 Oct highs and last major resistance ahead of 1.5200).

GbpUsd After breaking its 1 month uptrend (started on 13 Oct) last week around 1.6680 levels, GBPUSD suffered a heavy drop down to 1.6459 levels on Friday, but subsequent USD weakness has rescued the pair from further downside for now. We are currently back above 1.6600 levels looking to retest 1.6680 old support now turned resistance, but only a break back above 1.6750 will negative the bearish bias from here. Immediate support comes in at Friday’s lows 1.6459; a break below that leaves very little technical support until 1.6272 downside support.

UsdJpy Sideways movement continued last week within the 88.63 - 89.53 range. Today USDJPY fell slightly below the 88.63 support to bottom at 88.57, however this couldn’t be considered a definitive breakout and indicates that rangebound trading will persist until a clear breakout materializes. The long term downtrend remains the dominant bias, with next downside support of 88.00 being the only barrier ahead of 87.15 major support.

UsdChf USDCHF is currently testing the lower end of the channel its been trading in for the past week around 1.0090 but immediate support comes in near here at 1.0075 (18th Nov low). A break below suggest further drop towards major support at 1.0035, while major resistance around 1.0200-20 should contain any rallies.

Resistance and Support: