• Dollar Little Changed as Euro Fears Yet to Global Risk Panic
• Euro’s Accelerated Drop on Italian Crisis Postponed by ECB
• British Pound Steady after BoE Holds Amid Deteriorating Backdrop
• Australian Dollar Falls Short of Risk Trends’ Recovery Effort
• Canadian Dollar Advances as Trade Surplus, Oil Advance
• Japanese Yen: Is there a Clear Level to Trigger Intervention?
• Gold Recovers All of Thursday Morning’s Lost Ground

Dollar Little Changed as Euro Fears Yet to Global Risk Panic

It shouldn’t come as a surprise to anyone that after Wednesday’s seismic, risk aversion shift that sentiment extremes quickly settle. Generally, the masses have grown skeptical of any meaningful trend (especially a bearish one) taking over for capital markets. This is more habitual than fundamental. This dampening effect is born out of active intervention and manipulation by policy officials the world over that are attempting to prevent a freeze in credit markets that could lead to an evaporation of wealth, pervasive economic recessions and funding crises – all of which involve tremendous cost after-the-fact. The question that is coming up more frequently though is whether the expense to prevent a sweeping financial fire is greater than the clean up after one.

For the dollar, this policy-level debate will determine the timing of the next bull phase. As the consummate safe haven when pandemonium freezes capital and credit markets; the corrosion in global conditions is one of the very few boosters the currency can count on to gain traction against counterparts with higher notional and real rates of return. Through the immediate future, the approach remains crisis prevention. As such, the European Union stepped into the stem the bleeding in Italian bonds (more on that below) to prevent a complete collapse of confidence in an already troubled region. Much like in the US, Euro-region officials are forcing their rates lower in an effort to jump start growth; and where troubles prop up, a unique solution is offered. This effort is a boon to risk trends – as we saw the S&P 500 mark a critical rebound from 1,220 to fend off a critical reversal from October’s rally. On the other hand, it also undermines the inherent value of the euro (by lowering return more than risk). That leads us to EURUSD which wasn’t able overtake the 1.3875 level that held the pair up for past four weeks. For the Dow Jones FXCM Dollar Index (ticker =USDollar), holding above 9,775 and just below its recently tested month high.

With the currency tipped into a bullish break, technical traders recognize that we are at a critical juncture for potentially developing a new trend or pitching into another selloff. There is plenty of event risk to encourage a move (trade data this past session, consumer confidence tomorrow); but economic considerations don’t carry enough weight to jumpstart the broader capital markets – and few assets will be able to deviate from the larger shifts in sentiment at this point.

Related:Discuss the Dollar in the DailyFX Forum,John’sVideo:EURUSD has Made a Crisis Break but S&P 500 Holding back Risk Tides

Euro’s Accelerated Drop on Italian Crisis Postponed by ECB

It seemed the Euro-area had been tipped into the next phase of an ever-deepening crisis Wednesday as the benchmark 10-year Italian government bond yields surged above the 7 percent level that many expect is the threshold to an EU bailout. However, as officials have proven themselves quite adept at doing, they seemed to buy a little time to work out structural solutions. A five billion euro auction one-year Italian bond went through Thursday; and the results were clearly skewed. The 6.09 percent yield was the highest seen since 1997; but the full tender seemed to be covered. There is little doubt that the ECB was buying Italian bonds in the secondary market to support this effort and stabilize investor confidence (and there is even rumor that they may have somehow took part in the auction itself). Another potential catalyst for fear was a technical glitch that led Standard & Poor’s to send a downgrade warning for France to clients. This was quickly recalled however. In the meantime, we can see the more permanent influence of financial troubles - the EC downgraded its 2012 GDP forecast from 1.8 to 0.5 percent.

British Pound Steady after BoE Holds Amid Deteriorating Backdrop

The potential for a meaningful event-risk drive was there for the sterling Thursday with the Bank of England rate decision on deck. However, most pound traders recognized there was a low probability that the central bank would increase its bond purchasing program again so soon. Expectations for a tepid reaction proved correct as the central bank was generally mum. We will see more guidance from them in their quarterly inflation report next week. In the meantime, the European Commission noted there was a good chance of negative GDP in coming quarters.

Australian Dollar Falls Short of Risk Trends’ Recovery Effort

Risk appetite trends stabilized; so we would naturally expect the Australian dollar to bounce alongside the effort. The currency did indeed stabilize with the move; but there was very little conviction in any bullish efforts. With the Aussie policy authority setting the direction on easing rate policy, the threat of general risk aversion is meeting dropping capital gains for this currency specifically.

Canadian Dollar Advances as Trade Surplus, Oil Advance

Aside from the short-term positive swing in risk trends, the Canadian dollar received an additional boost through event risk and fundamental correlations. The trade figure for September unexpectedly jumped into positive territory (C$1.25 billion) for the first time since January – reminding us of its export strength. The rally in oil furthered that reminder.

Japanese Yen: Is there a Clear Level to Trigger Intervention?

With USDJPY pushing down slowly but consistently, we have to wonder if there is a level at which the Ministry of Finance or Bank of Japan has determined a critical level. On October 31st, we didn’t see any exceptional volatility; but we did have a push to new record lows. Will they let it go that low again? Unlikely. A sign of volatility will likely force their hand once again on this pair specifically.

Gold Recovers All of Thursday Morning’s Lost Ground

Thursday’s open was not a favorable one for gold as the European crisis was spilling forward. Yet, when the ECB stepped in to help the Italian auction; there was a relief in liquidity fears. That said, there was still a risk aversion sense which would help push the precious metal back up to retrace most of its losses through the Asian session Friday morning.

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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
9:30	GBP	PPI Input n.s.a. (MoM) (OCT)	-0.3%	1.7%	British producer prices expected to fall, but unlikely to prompt further BoE easing as bank watches effects of asset purchase expansion
9:30	GBP	PPI Input n.s.a. (YoY) (OCT)	14.6%	17.5%
9:30	GBP	PPI Output n.s.a. (MoM) (OCT)	0.2%	0.3%
9:30	GBP	PPI Output Core n.s.a. (MoM) (OCT)	0.1%	0.3%
9:30	GBP	PPI Output n.s.a. (YoY) (OCT)	5.9%	6.3%
9:30	GBP	PPI Output Core n.s.a. (YoY) (OCT)	3.6%	3.8%
14:55	USD	U. of Michigan Confidence (NOV P)	61.5	60.9	Preliminary November report critical for US and risk as data leads overall confidence and spending going into winter months
	CNY	New Yuan Loans (OCT)	500.0B	470.0B	Even with increasing tightening, money supply expected to expand, may put pressure on government to further restrict economy
	CNY	Money Supply - M1 (YoY) (OCT)	9.3%	8.9%
	CNY	Money Supply - M2 (YoY) (OCT)	13.0%	13.0%
	CNY	Money Supply - M0 (YoY) (OCT)		12.7%

GMT	Currency	Upcoming Events & Speeches
19:45	USD	Fed's Williams Speaks on Panel at IMF 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	1.3590	1.5917	77.66	0.9071	1.0186	1.0140	0.7764	105.54	123.61
Support 1	1.3500	1.5900	77.50	0.8500	0.9950	1.0100	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 18:00 GMTSCANDIES 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	13.5535	1.7908	7.9773	7.7793	1.2910		Spot	6.6934	5.4762	5.7043
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	1.3745	1.6040	78.04	0.9212	1.0307	1.0291	0.7863	106.67	124.60
Resist 1	1.3667	1.5978	77.85	0.9142	1.0247	1.0215	0.7813	106.10	124.11
Pivot	1.3576	1.5924	77.68	0.9080	1.0205	1.0134	0.7773	105.42	123.60
Support 1	1.3498	1.5862	77.49	0.9010	1.0145	1.0058	0.7723	104.85	123.10
Support 2	1.3407	1.5808	77.32	0.8948	1.0103	0.9977	0.7683	104.17	122.59

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	1.3817	1.6096	78.48	0.9235	1.0328	1.0331	0.7913	107.43	125.45
Resist. 2	1.3760	1.6051	78.27	0.9194	1.0292	1.0284	0.7876	106.96	124.99
Resist. 1	1.3704	1.6006	78.07	0.9153	1.0257	1.0236	0.7838	106.48	124.53
Spot	1.3590	1.5917	77.66	0.9071	1.0186	1.0140	0.7764	105.54	123.61
Support 1	1.3476	1.5828	77.25	0.8989	1.0115	1.0044	0.7690	104.60	122.69
Support 2	1.3420	1.5783	77.05	0.8948	1.0080	0.9996	0.7652	104.12	122.23
Support 3	1.3363	1.5738	76.84	0.8907	1.0044	0.9949	0.7615	103.65	121.77

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

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