• Dollar Carves its Smallest Range in Six Weeks as Major Risk Ahead
• Euro: Officials Try to Counter Elevated Crisis Risk, Solution Dubious
• Australian Dollar RBA Cut and GDP Reactions Dampened by Risk Trends
• Canadian Dollar Posts Risk-Curbed Rally on BoC Rate Hold
• British Pound Traders Unnerved by BoE’s Preemptive Liquidity Program
• Swiss Franc Temporarily Drops after CPI Miss, SNB Announces Reserves
• Gold Mounts Impressive Recovery alongside Risk Trends on Anemic Volume

Dollar Carves its Smallest Range in Six Weeks as Major Risk Ahead

The financial markets put in for a notable, intraday swing in sentiment Tuesday; but this shift in outlook wouldn’t translate into sustainable conviction. Both the US dollar and capital markets are cutting anemic ranges against the backdrop of a loaded fundamental docket. Assigning this lack of activity to seasonal effects wouldn’t only be incorrect – it would be dangerous. Assuming the quiet conditions are related to year-end wind down would lead us to a passive, short-term and less flexible trading approach. That would be the exact opposite of the approach we should actual take – treating the quiet markets as an omen of a sudden and aggressive surge in volatility that can be initiated by the announcement of the Euro Zone’s plans to halt the spread of a building crisis. Given the threat level of event risk moving forward alongside the slow deterioration of structural market conditions and economic activity; the next week-and-a-half are exposed to exceptional risk.

If we were approaching this from a derivatives approach – we would say that implied risk is ‘cheap’. In other words, market price and volatility outlook measures are not fully compensating for fundamental-derived market waves ahead. Taking stock of the current market pace, we find theDow Jones FXCM Dollar Index closed out its smallest daily range (49 points) since October 28th. The 94-pip daily span on EURUSD was a similar six-week low (representing the Thanksgiving holiday hangover) and the sixth smallest range in the past six months. And, representing specifically the demand for liquidity quality, USDJPY trekked only 22 pips to represent the sixth quietest, regular trading day in five years. This isn’t just an FX lull either. The average daily range over the past four active trading days forthe S&P 500 Index was less than 16 points (the greatest lack of drive since July 26th) while the ‘fear’ indicator in the VIX hovers just above its three month low.

As the saying goes, “it’s quiet….too quiet”. Measuring the possible repercussions from the EU Summit later this week, it is very likely that either a substantial and immediate threat to global financing will be temporarily removed or the hesitation in broad risk unwinding will disappear. Either scenario invites at least a short-term trend as it would finally align speculative positioning. In the meantime, there were no substantive US-based indicators released this past 24 hours and no plans for big releases over the coming 24 hours. Worth monitoring though are credit market and liquidity measures at the Fed and market level. There is unlikely to be a definable point where the financial crisis spreads from the EU to US.

Related:Discuss the Dollar in the DailyFX Forum

Euro: Officials Try to Counter Elevated Crisis Risk, Solution Dubious

The risk for the European financial markets and collective economy going forward isdangerously high. There is no true precedence for the policy choices that lay ahead for officials; and that uncertainty means investors cannot readily discount the various scenarios. Standard & Poor’s raised another hurdle for a successful response to the region’s troubles when it put 15 Euro Zone members on downgrade watch; and just to make sure that the market could connect the dots on the trouble this entailed: the group has further warned that the EFSF is at risk of as much as a two-step downgrade should one of its top rated guarantors fall under the sovereign ax. From a practical stand point this would mean higher rates for raising capital – something the bailout initiative can’t afford. Perhaps trying to counter these troubles with an equally massive effort, rumors circulated through this past session that the EU was contemplating lifting or removing the cap on the 500 billion euro bailout program or perhaps; while FT quoted sources who said a second bailout program idea was being floated. Tempting, if they could actually fund the first program…

Australian Dollar RBA Cut and GDP Reactions Dampened by Risk Trends

The Australian wires have been on fire over the past few days. Tuesday morning brought us the RBA rate cute with a sell off that carried surprising consistency given the anchored risk backdrop. In the end, though, the hold on sentiment trends would pull the Aussie back up. The same containment was present onthe 3Q GDP figures. The quarterly figure bested expectations with a 1.0 percent pick up; yet it was still a cooler pace than the previous period. Given the central bank’s concerns for activity going forward, this slowing trend will likely stick.

Canadian Dollar Posts Risk-Curbed Rally on BoC Rate Hold

Is the Canadian dollar the ideal safe haven? The AAA-rated country was able to avoid much of the 2008 financial shock and the economic slump was far smaller than its US counterpart. The BoC’s statement alongside its rate hold seems to stir up similar sentiments with the note that growth was better than expected. That said, their general sentiment is for global economic and financial troubles to lap at Canadian shores.

British Pound Traders Unnerved by BoE’s Preemptive Liquidity Program

Aside from the BRC shop price inflation indicator, there wasn’t much in the way of scheduled event risk for the British pound this past session. More interesting though is the Bank of England taking action to match its fear that the EU crisis will spill over to the UK financial system. The bank announced an Extended Collateral Term Repo Facility. The group said there are no liquidity issues now; but this is a preemptive program.

Swiss Franc Temporarily Drops after CPI Miss, SNB Announces Reserves

Consumer prices are contracting at the fast pace since October 2009 in Switzerland according to the 0.5 percent year-over-year CPI figures this past session. If rates in Switzerland weren’t already essentially zero, something could be done. However, the real issues isn’t retail prices but rather exchange rate. To that point, EURCHF is still holding below 1.2500 and FX reserves have slid from 245 to 229 billion francs in November.

Gold Mounts Impressive Recovery alongside Risk Trends on Anemic Volume

Given the high, recent correlation between gold and risk trend; the intraday bounce in sentiment Tuesday carried the precious metal up from a substantial decline. Volume for gold futures over the past three trading days has averaged an anemic 124,000 contracts. This alongside the quiet capital markets undercuts the argument that the unusual relationship is a factor of market-wide liquidity issues.

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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
0:30	AUD	Gross Domestic Product (QoQ) (Q3)	1.2%	1.2%	Sharp rise in GDP shows Australia is weathering global, China slowdown
0:30	AUD	Gross Domestic Product (YoY) (Q3)	2.3%	1.4%
5:00	JPY	Coincident Index (OCT P)	90.3	89	Both indices show some improvement, though call for more government action strong
5:00	JPY	Leading Index (OCT P)	91.5	91.5
6:45	CHF	Unemployment Rate (NOV)	3.1%	2.9%	Labor figures may not have as much sway on SNB as inflation
6:45	CHF	Unemployment Rate s.a. (NOV)	3.1%	3.0%
9:30	GBP	Industrial Production (MoM) (OCT)	-0.3%	0.0%	British industries expected to face further headwinds, though scope for additional easing by the BoE limited
9:30	GBP	Industrial Production (YoY) (OCT)	-0.7%	-0.7%
9:30	GBP	Manufacturing Production (MoM) (OCT)	-0.3%	0.2%
9:30	GBP	Manufacturing Production (YoY) (OCT)	1.4%	2.0%
11:00	EUR	German Indus Prod n.s.a. and w.d.a. (YoY) (OCT)	3.5%	5.4%	German industrial production expected to weaken again, suggests more ECB easing
11:00	EUR	German Industrial Production s.a. (MoM) (OCT)	0.3%	-2.7%
15:00	GBP	NIESR Gross Domestic Product Estimate (NOV)		0.5%	Estimate will point to stagnant British economy
20:00	USD	Consumer Credit (OCT)	$7.000B	$7.386B	Credit still tight despite swaps
20:00	NZD	Reserve Bank of New Zealand Rate Decision	2.50%	2.50%	RBNZ may delay reversal of rate cut into middle of next year as another global slowdown conflicts with tighter monetary policy
21:45	NZD	Manufacturing Activity (Q3)		2.1%	New Zealand industries seen stagnant
21:45	NZD	Manufacturing Activity Volume s.a. (QoQ) (Q3)		-0.7%
23:00	NZD	QV House Prices (YoY) (NOV)		1.2%	NZ houses growing moderately

GMT	Currency	Upcoming Events & Speeches
8:15	EUR	ECB Calls for Bids in 3-Month Dollar Tender
10:00	EUR	ECB Announces Allotment in 3-Month Dollar Tender

SUPPORT AND RESISTANCE LEVELS

To see updatedSUPPORT AND RESISTANCE LEVELS for the Majors, visitTechnical Analysis Portal

To see updated PIVOT POINT LEVELS for the Majors and Crosses, visit ourPivot Point Table

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	9.2080	7.8165	1.3650		Resist 2	7.5800	5.6625	6.1150
Resist 1	14.3200	1.9000	8.5800	7.8075	1.3250		Resist 1	6.5175	5.3100	5.7075
Spot	13.4653	1.8344	8.0280	7.7717	1.2838		Spot	6.7345	5.5466	5.7550
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 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	1.3611	1.5783	78.48	0.9415	1.0222	1.0417	0.7933	105.88	122.79
Resist. 2	1.3559	1.5737	78.29	0.9377	1.0191	1.0372	0.7899	105.46	122.40
Resist. 1	1.3507	1.5691	78.10	0.9339	1.0159	1.0328	0.7865	105.03	122.01
Spot	1.3403	1.5599	77.72	0.9263	1.0097	1.0239	0.7797	104.17	121.23
Support 1	1.3299	1.5507	77.34	0.9187	1.0035	1.0150	0.7729	103.31	120.45
Support 2	1.3247	1.5461	77.15	0.9149	1.0003	1.0106	0.7695	102.88	120.05
Support 3	1.3195	1.5415	76.96	0.9111	0.9972	1.0061	0.7661	102.46	119.66

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

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