The greenback plummeted in early North American trade with the Dow Jones FXCM Dollar Index(Ticker:USDollar) off by just 0.94% at noon in New York. The decline comes on the heels of a massive risk rally as favorable news regarding the swearing in of a new Greek government and the passage of new budget measures in Italy fueled risk appetite. Economic data out of the US also helped support equity markets after the November University of Michigan confidence survey topped estimates with a print of 64.2, its highest level since June. Stocks continued to rip higher with the Dow, the S&P, and the NASDAQ advancing 2.22%, 2.01%, and 1.96% respectively. However with bond markets closed in observance of Veterans Day, the rally may quickly tapper off next week when bond traders return to markets and investors start to reassess the longer-term sustainability of the periphery nations. If progress in Greece and Italy begins to stall, markets may once again see a surge in volatility as Italian borrowing costs come back into focus.

The dollar broke back below the 38.2% Fibonacci extension taken from the June 2010 and November 2010 crests at 9745 as improved risk sentiment saw traders jettison the low yielding greenback in favor of the aussie, the euro, and the kiwi. The dollar broke below the 50-day moving average with medium-term support eyed at the 20-day moving average at 9686. Note that an RSI break below the 50-mark would suggest the possibility for further dollar losses in the week ahead.

An hourly chart shows the index continuing to hold within the confines of an ascending channel dating back to October 31st with the greenback holding just above channel support at 9700. A break below 9690 risks further losses with subsequent floors seen at the 23.6% Fibonacci extension taken from the August 1st and October 27th troughs at 9636, 9600, and 9550. Topside resistance now stands at the 38.2% extension at 9745 backed by 9800 and the 50% extension at 9850.

The greenback fell against all four component currencies highlighted by a 0.98% decline against the Australian. A surge in risk appetite early in the session saw higher yielding assets soar as the dollar came under pressure with the aussie breaking back above its 50-day moving average at 1.0195. The euro followed suite with an advance of 0.93% as eased concerns regarding the European debt crisis fueled a relief rally in the single currency. The yen was the weakest performer of the lot climbing 0.70% by noon in New York. Yen advances are likely to remain tempered as intervention concerns are rekindled after the USD/JPY pair tested the 61.8% Fibonacci retracement taken from the intervention advance.

The economic docket is quiet early next week with no data of significance on tap until Tuesday when PPI, advanced retail sales, and empire manufacturing hit the wires. In the interim, dollar price action will continue to be dictated by broader market sentiment as traders continue to eye developments out of the euro zone.

---Written by Michael Boutros, Currency Analyst with DailyFX.com

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