• Dollar Posts its Biggest Back to Back Rally on Record Before Fed
• Euro Risk Hits Severe Levels as Greece Pushes Forward Referendum
• British Pound Stumbles against Dollar Despite Stronger 3Q GDP
• Australian Dollar Extends Decline on Risk, Not Necessarily RBA
• Japanese Yen: Market on Follow Up Intervention Watch
• Swiss Franc Pressured Again, Market Testing the SNB’s Conviction
• Gold Recovers Early Losses, Safety Versus Liquidity In Play

Dollar Posts its Biggest Back to Back Rally on Record Before Fed

If you’re looking for volatility: you can certainly find it in the fundamentals behind the financial markets. Through the end of last week, it seemed market participants were reassured by the European Union’s landmark effort to amplify its rescue effort and the boost in US growth through the September quarter. That optimism was turned on its head, however, when this week began as doubt that the Greek bailout would be carried through full term and financial fears were stoked by the collapse of a large US broker (MF Global). With a prevailing risk aversion trend and sentiment itself highly prone to changing direction; what do traders and investors want? They crave stability and liquidity; and that leads them to the greenback. In other words, it isn’t a coincidence that the Dow Jones FXCM Dollar Index (ticker =USDollar) is showing its biggest two-day rally on records (going back to 1999) while the S&P 500 is down nearly 2.5 percent on consecutive sessions.

The plunge in risk so far this week has been tremendous; but that does not guarantee a full-blown trend will take from here. Technical traders will note there are immediate levels of resistance for equity indexes the world over (S&P 500, DAX, FTSE 100, Nikkei 225, etc). This is a reminder that maintaining a risk aversion trend requires active selling of existing exposure and the application of new speculative shorts. A threat to market stability from the European sovereign region and through US credit conditions on the broker collapse are significant drivers; but this big move shows the market has moved quickly to price these drivers in. To further the unwinding cause, conditions need to further deteriorate. That said, despite allusions to Lehman Brothers; MF Global doesn’t immediately seem to have the scope of exposure as the failed investment bank. And, as for the European situation (more on this below), the market has suspected this and has time before a decision is made.

A more active counterpoint to speculative unwinding though is the upcomingFederal Open Market Committee (FOMC) rate decision. Though the probability is exceptionally low, there are still lingering expectations that the policy group could signal a QE3 program. Considering the positive influence of QE2 was limited to the life of the program, hope that a third iteration could do something different is unrealistic. On the other hand, the investment community would likely just use the temporary buoyancy to draw a little more return and erase losses or squeeze out gains. Nevertheless, we should keep a close eye on this meeting. The absence of QE3 terminology in the statement doesn’t end its influence. A number of central bankers have voiced an openness to stimulus should it be needed; so we should take a critical look at the updates Fed forecasts as well as Chairman Bernanke’s press conference after the official announcement.

Related:Discuss the Dollar in the DailyFX Forum,John’sVideo:Will the Fed Offer Relief to EURUSD's MF Global, Greece Crisis Tumble?

Euro Risk Hits Severe Levels as Greece Pushes Forward Referendum

There was significant back and forth in confidence surrounding the Euro-region’s health Tuesday afternoon as speculation swung back and forth on the belief that Greece was pushing forward with a referendum on its austerity path. In the early Asian session, the prevailing belief is that Prime Minister Papandreou’s call for a confidence vote on policy that is seen keeping the country chained to years of austerity-derived recession was on mark and it would be resolved before the end of the year. Current polling suggests Greeks are against further austerity; which necessarily conflicts with the EU’s demands for support. Ultimately, this could be the event that leads to the first withdrawal from the Monetary Union since its inception. The near-term impact would be fear of a complete EU meltdown; but long-term it would likely be beneficial for both.

British Pound Stumbles against Dollar Despite Stronger 3Q GDP

Despite a better-than-expectedthird quarter GDP reading for the UK, the sterling accelerated its tumble against the US dollar after the data release. The immediate issue is that this prevailing trend was for risk aversion (and specifically away from European exposure); but the selling momentum after the dollar speaks to an additional concern. While the 0.5 percent performance for the quarter was a pickup; it does not pan out in the overall trend. There is prevailing concern that the UK could see negative growth as soon as the current quarter under austerity.

Australian Dollar Extends Decline on Risk, Not Necessarily RBA

The RBA rate cut has emboldened dovish calls for further cuts in the benchmark Australian rate as inflation cools and Chinese growth eases export demand. Yet, that isn’t necessarily the key catalyst this week. A pullback in yield advantage (likely measured) is a high probability; but theAussie dollar’s immediate trouble is in general risk aversion. Switching yield for liquidity is an outside influence for the commodity currency.

Japanese Yen: Market on Follow Up Intervention Watch

For those keeping tabs, the Japanese recovered much of the ground it lost against the euro, Swiss franc, Canadian, Australian and New Zealand dollars. What does this tell us? The fear of intervention (even a large one) cannot compete with the tremendous influence of underlying sentiment trends. USDJPY remains the focus. And, if just the threat of intervention is keeping it up, the upcoming G20 meet should curb fear.

Swiss Franc Pressured Again, Market Testing the SNB’s Conviction

The Swiss franc has found significant headway against the euro and US dollar recently. This is no doubt making SNB officials nervous. While they are committed to the 1.20 floor in EURCHF; their ultimate interest is in pushing the franc progressively lower. That isn’t happening. We probably won’t see this until EURCHF hits 1.20 and USDCHF really drops off; but expectation for another floor increase could start to pick up.

Gold Recovers Early Losses, Safety Versus Liquidity In Play

Tuesday was another interesting session for gold. The opening drive began where Monday’s trend left off: a demand for liquidity drove investors away from the expensive safe haven. Yet, a late-day reversal that lifted the metal to a positive close suggests sentiment shifted to a standard risk-aversion and avoidance of government manipulation mode. We shouldn’t become too confident in liquidity conditions however.

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**For a full list of upcoming event risk and past releases, gotowww.dailyfx.com/calendar

ECONOMIC DATA

Next 24 Hours

GMT	Currency	Release	Survey	Previous	Comments
0:00	AUD	HIA New Home Sales (MoM) (SEP)		1.1%	Minor data may not move markets
0:30	AUD	Building Approvals (MoM) (SEP)	-4.9%	11.4%	More important measure of Australian housing market could be one of the key factors on when RBA will cut rates
0:30	AUD	Building Approvals (YoY) (SEP)	0.1%	-5.5%
8:45	EUR	Italian PMI Manufacturing (OCT)	47.2	48.3	Overall PMI weaker, relieves pressure on ECB to cut rates
8:50	EUR	French PMI Manufacturing (OCT F)	49	49
8:55	EUR	German Unemployment Change (OCT)	-10K	-26K	Major data of European session: German labor markets expected to weaken slower
8:55	EUR	German Unemployment Rate s.a. (OCT)	6.9%	6.9%
8:55	EUR	German PMI Manufacturing (OCT)	48.9	48.9
9:00	EUR	Eurozone PMI Manufacturing (OCT F)	50	50.1	PMI continues to fall
9:30	GBP	PMI Construction (OCT)	49.8	50.1	Construction sector still weaker
11:00	USD	MBA Mortgage Applications (OCT 28)		4.9%	Weekly data treading water
11:30	USD	Challenger Job Cuts (YoY) (OCT)		211.5%	Labor estimates ahead of Friday’s NFPs expected better, but correlations in the past have been weak
12:15	USD	ADP Employment Change (OCT)	100K	91K
14:30	USD	DOE U.S. Crude Oil Inventories (OCT 28)		4735K	Energy inventories points to moderate growth in demand in the US
14:30	USD	DOE Cushing OK Crude Inventory (OCT 28)		419K
14:30	USD	DOE U.S. Distillate Inventory (OCT 28)		-4275K
14:30	USD	DOE U.S. Gasoline Inventories (OCT 28)		-1353K
16:30	USD	Federal Open Market Committee Rate Decision	0.25%	0.25%	Widely expected to hold, but Chairman Bernanke’s press conference will be more important
17:00	EUR	Italian New Car Registrations (YoY) (OCT)		-5.7%	Points to lower consumer spending
18:00	EUR	Italian Budget Balance (euros) (OCT)		-11.8B	Italian budget deficit expected increase further despite EU calls to wrangle problem
18:00	EUR	Italian Budget Balance (euros) (YTD) (OCT)		-58.8B
21:45	NZD	Unemployment Rate (Q3)	6.4%	6.5%	Kiwi labor markets expected to strengthen moderately, could support hastening of rate cut reversal
21:45	NZD	Employment Change (QoQ) (Q3)	0.6%	0.0%
21:45	NZD	Employment Change (YoY) (Q3)	1.6%	2.0%
21:45	NZD	Participation Rate (QoQ) (Q3)	68.5%	68.4%
22:30	AUD	AiG Performance of Service Index (OCT)		50.3	Services may weaken into Q4
	GBP	Halifax Plc House Prices s.a. (MoM) (OCT)	0.1%	-0.5%	Housing survey may still show lower demand, along with others
	GBP	Halifax House Price (3MoY) (OCT)	-2.3%	-2.3%

GMT	Currency	Upcoming Events & Speeches
18:15	USD	Bernanke Speaks at Fed Press Conference

SUPPORT AND RESISTANCE LEVELS

CLASSIC SUPPORT AND RESISTANCE - 18:00 GMT

Currency	EUR/USD	GBP/USD	USD/JPY	USD/CHF	USD/CAD	AUD/USD	NZD/USD	EUR/JPY	GBP/JPY
Resist 2	1.4250	1.6445	81.50	0.9300	1.0675	1.1080	0.9020	112.00	131.00
Resist 1	1.4000	1.6100	79.50	0.9150	1.0675	1.0770	0.8750	109.35	128.30
Spot	1.3708	1.5959	78.34	0.8868	1.0177	1.0349	0.7959	107.38	125.01
Support 1	1.3600	1.5900	77.50	0.8500	0.9950	1.0150	0.7500	105.00	122.35
Support 2	1.3350	1.5700	75.50	0.7800	0.9750	1.0000	0.6850	102.00	116.00

CLASSIC SUPPORT AND RESISTANCE

EMERGING MARKETS &SCANDIES CURRENCIES 18:00 GMT

Currency	USD/MXN	USD/TRY	USD/ZAR	USD/HKD	USD/SGD		Currency	USD/SEK	USD/DKK	USD/NOK
Resist 2	16.5000	2.0000	8.5800	7.8165	1.3650		Resist 2	7.5800	5.6625	6.1150
Resist 1	14.3200	1.9000	8.1025	7.8075	1.3250		Resist 1	6.5175	5.3100	5.7075
Spot	13.5905	1.7931	8.0816	7.7711	1.2727		Spot	6.6107	5.4280	5.6596
Support 1	12.6000	1.6500	6.5575	7.7490	1.2000		Support 1	6.0800	5.1050	5.3040
Support 2	11.5200	1.5725	6.4295	7.7450	1.1800		Support 2	5.8085	4.9115	4.9410

INTRA-DAY PIVOT POINTS 18:00 GMT

Currency	EUR/USD	GBP/USD	USD/JPY	USD/CHF	USD/CAD	AUD/USD	NZD/USD	EUR/JPY	GBP/JPY
Resist 2	1.3991	1.6189	79.41	0.9060	1.0354	1.0692	0.8184	110.45	127.91
Resist 1	1.3850	1.6074	78.87	0.8964	1.0266	1.0520	0.8071	108.91	126.46
Pivot	1.3729	1.5982	78.45	0.8864	1.0120	1.0396	0.7996	107.71	125.37
Support 1	1.3588	1.5867	77.91	0.8768	1.0032	1.0224	0.7883	106.17	123.92
Support 2	1.3467	1.5775	77.49	0.8668	0.9886	1.0100	0.7808	104.97	122.82

INTRA-DAY PROBABILITY BANDS 18:00 GMT

\Currency	EUR/USD	GBP/USD	USD/JPY	USD/CHF	USD/CAD	AUD/USD	NZD/USD	EUR/JPY	GBP/JPY
Resist. 3	1.3928	1.6131	79.19	0.9019	1.0313	1.0540	0.8109	109.28	126.91
Resist. 2	1.3873	1.6088	78.98	0.8982	1.0279	1.0492	0.8072	108.81	126.43
Resist. 1	1.3818	1.6045	78.76	0.8944	1.0245	1.0444	0.8034	108.33	125.96
Spot	1.3708	1.5959	78.34	0.8868	1.0177	1.0349	0.7959	107.38	125.01
Support 1	1.3598	1.5873	77.92	0.8792	1.0109	1.0254	0.7884	106.43	124.07
Support 2	1.3543	1.5830	77.70	0.8754	1.0075	1.0206	0.7846	105.95	123.59
Support 3	1.3488	1.5787	77.49	0.8717	1.0041	1.0158	0.7809	105.48	123.12

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---Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com

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