• Dollar Posts Biggest Rally in Three Weeks as Euro Doubt Builds
• Euro: Rating Agencies Voice Discouragement in EU, ECB Efforts
• Swiss Franc Tumbles Monday, Key USDCHF Break may Find SNB Support
• British Pound Shows Notable Contrast to Euro Weakness
• Australian Dollar Slides as Government Bond Rate Hits Record Low
• Japanese Yen Drops against Safe Haven Dollar Counterpart in Risk Current
• Gold Explodes from Congestion Amid Reported Bank Sales, Lending

Dollar Posts Biggest Rally in Three Weeks as Euro Doubt Builds

A dollar trader wouldn’t really question the currency’s performance through the opening trading session this week. The hearty decline from the S&P 500 (1.5 percent) and concurrent ‘risk-off’ shift for the broader capital markets offered more than enough reason to believe the safe haven currency should be on the rise. However, just as we have been skeptical of the rise in speculative interests, so too should wequestion the drive behind this particular slide in risky positioning. It is easy to be convinced of a market development when it fits nicely into our fundamental expectations. The first consideration is conviction measured at the market-level. Technical traders should make note that the S&P 500 futures have yet to slip below meaningful support at 1,220 (the macro-inclined would further confirm that index futures for Germany, the UK, Japan and other nations have slowed at their own floors). Furthermore, volume on the benchmark US index was anemic at 609 million shares.

Participation in a rally or decline is a critical gauge of likely follow through. And, from the lack of conviction behind this particular move; it is worth maintaining a bearing of skepticism as we wait confirmation of trend development. Momentum aside, there is fundamental and trade flow support for a new trend to grow roots. After months of extremely volatile short-term swings from risk-sensitive markets; traders are coming to realize that a trend in positioning will take only if the underlying fundamental theme supports the move. That said, the short-term correlation (20-day or one-month) between theDow Jones FXCM Dollar Index, the S&P 500 and 10-year Treasury yield have been exceptionally strong recently. This suggests the markets are tuned into risk trends and awaiting a clear shift in sentiment to instigate a broad change in positioning; but we need something to sustain such a move in capital.

For the bearish-inclined (like myself), theshortcomings of the European Union and ECB’s policy efforts this past week is enough to weigh bolster expectations of speculative unwinding moving forward. Yet, unless the masses (both leveraged speculators and money managers) believe the same; progress will not follow. There are a few catalysts that can instigate this from the euro’s side (more on that below); but the US could trigger a tide change of its own. In the upcoming session, we have theFOMC rate decision. There is no change expected in the group’s stimulus regime; but expectations set the stage for surprises. Perhaps the most remarkable impact from a volatility standpoint (though it is has a low probability of occurring) is the announcement of further easing through the balance sheet – or commentary to bolster expectations for more in the future. Such an action would bolster risk and devalue the dollar – a double shot for the greenback. That said, no assistance along with no guidance for the future could shake bulls out of positions and guide capital back to the dollar and Treasuries.

Euro: Rating Agencies Voice Discouragement in EU, ECB Efforts

Compared to the heavy fundamental headlines in the second half of last week, the Euro opened to a relatively quiet fundamental backdrop Monday. However, the gravity of deteriorating financial and economic conditions for the Euro Zone alongside the downgrade threats from rating agencies keeps the currency under the pressure. With the knowledge that the EU Summit last week did little to stem the bleeding from the current crisis; the markets are left to wait for an unforeseen catalyst to decide their next trend. Before the headlines last week, Standard & Poor’s put 15 Euro Zone countries, the EU, the EFSF and large groups of European financial firms on credit watch. However, this past session is wasMoody’s and Fitch who noted their lack of confidence in recent policy efforts. As we await their review, there are significant bond auctions for the market to pass its judgment. Italy drew painful 5.95 percent yields this past session. Ahead we have Spain, Greece and the EFSF selling debt.

Swiss Franc Tumbles Monday, Key USDCHF Break may Find SNB Support

The franc tumbled against most of its liquid counterparts to open the new trading week. The exception to the selling pressure was the highest yielding currencies (Aussie and kiwi dollars) and the Euro. This speaks to risk aversion spilling over and the fundamental connections the market is making between the Euro Zone economic slowdown and financial troubles and Switzerland. The tumble from the Swiss currency (especially against fellow safe havens) leverages thepressure on SNB officials who are scheduled to meet later this week.

British Pound Shows Notable Contrast to Euro Weakness

Last week, UK Prime Minister Cameron rejected the otherwise unanimous call amongst EU officials to push through financial changes that would be used to prevent future financial crises. This call seems to have built a buffer for the pound which performed notably better against liquid counterparts and marked significant progress against the euro. BoE officials and rate watchers will keep an eye on CPI data due ahead.

Australian Dollar Slides as Government Bond Rate Hits Record Low

A high yield is a substantial buffer to risk aversion flows. The higher the return a currency provides, the better it is able to withstand the selling pressure related to higher concerns of speculative retrenchment. That is where the Aussie dollar is under the greatest threat of losing ground. Forget benchmark rates.This morning, the Australian 10-year government bond yield hit a five-decade plus low of 3.84 percent.

Japanese Yen Drops against Safe Haven Dollar Counterpart in Risk Current

There is enough evidence that the market was in a ‘risk-off’ mode Monday; but the traditional influence this drive has on USDJPY didn’t pan out. Typically, we see the Japanese currency outshine the dollar when it comes to liquidating risk (carry); but the opposite happened as the S&P 500 tumbled. It is difficult to argue a sustainable bull trend on this pair without a momentous liquidation effort or intervention; but keep an eye on it.

Gold Explodes from Congestion Amid Reported Bank Sales, Lending

Risk aversion has kicked up to start the week, heavy skepticism surrounds the financial stability of the Euro Zone’s rescue efforts and ETF holdings of gold have hit record highs. Despite all this, the precious metal marked a critical bearish break to its multi-month congestion pattern. There is talk that banks are selling and lending out their gold (even at negative rates) in order to raise desperately needed cash.

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ECONOMIC DATA

Next 24 Hours

GMT	Currency	Release	Survey	Previous	Comments
0:00	AUD	CBAHIA House Affordability (3Q)		56.2	Index fluctuating with house prices
0:01	GBP	RICS House Price Balance (NOV)	-25%	-24%	British housing still weaker
0:30	AUD	Dwelling Starts (3Q)	-1.0%	-4.7%	Construction expected to drop, may be helped in Q4 by low rates
0:30	AUD	NAB Business Confidence (NOV)		2	Confidence fluxing around 0
0:30	AUD	NAB Business Conditions (NOV)		-1
6:30	EUR	French CPI - EU Harmonised (MoM) (NOV)	0.1%	0.3%	French inflation expected to be in check, may open doors to more lower rates from the ECB
6:30	EUR	French CPI - EU Harmonised (YoY) (NOV)	2.5%	2.5%
9:30	GBP	DCLG UK House Prices (YoY) (OCT)		-1.4%	British house prices expected weak
9:30	GBP	CPI (MoM) (NOV)	0.2%	0.1%	British inflation expected to cool as global economy slows down again; may increase scope for BoE easing
9:30	GBP	CPI (YoY) (NOV)	4.8%	5.0%
9:30	GBP	Core CPI (YoY) (NOV)	3.3%	3.4%
9:30	GBP	RPI (NOV)	238.4	238.0	Retail prices expected to weaken in line with consumer prices
9:30	GBP	RPI (MoM) (NOV)	0.2%	0.0%
9:30	GBP	RPI (YoY) (NOV)	5.1%	5.4%
9:30	GBP	RPI Ex Mort Int.Payments (YoY) (NOV)	5.3%	5.6%
10:00	EUR	German ZEW Survey (Current Situation) (DEC)	31	34.2	ZEW survey expectations still point lower as EU debt fears continue to linger
10:00	EUR	Euro-Zone ZEW Survey (Sentiment) (DEC)		-59.1
10:00	EUR	German ZEW Survey (Sentiment) (DEC)	-55.8	-55.2
12:30	USD	NFIB Small Business Optimism (NOV)	91.4	90.2	Optimism could continue higher
13:30	USD	Advance Retail Sales (NOV)	0.6%	0.5%	Retail sales and optimism expectations seen higher, may point to US recovery despite slowing global economy
13:30	USD	Retail Sales Less Autos (NOV)	0.4%	0.6%
13:30	USD	Retail Sales Ex Auto & Gas (NOV)	0.5%	0.7%
15:00	USD	IBD/TIPP Economic Optimism (DEC)	41.8	40.6	Trending higher with other indices
15:00	USD	Business Inventories (OCT)	0.8%	0.0%	Investment spending higher
19:15	USD	FOMC Rate Decision (DEC 13)	0.25%	0.25%	Fed widely expected to hold rate near historic lows, keeping promise until mid-2013 to help domestic growth. Additional stimulus expectations fading amidst recovering US economy
	GBP	Nationwide Consumer Confidence (NOV)	36	36	Stagnant as slower growth at odds with additional easing

GMT	Currency	Upcoming Events & Speeches
6:45	CHF	SECO December 2011 Economic Forecasts

SUPPORT AND RESISTANCE LEVELS

To see updated SUPPORT 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 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	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	13.8420	1.8722	8.2845	7.7837	1.3012		Spot	6.8802	5.6389	5.8368
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	1.3398	1.5764	78.67	0.9527	1.0395	1.0248	0.7762	104.37	122.94
Resist. 2	1.3345	1.5718	78.48	0.9488	1.0362	1.0204	0.7728	103.96	122.56
Resist. 1	1.3293	1.5673	78.29	0.9449	1.0329	1.0159	0.7695	103.56	122.17
Spot	1.3187	1.5582	77.91	0.9370	1.0262	1.0071	0.7628	102.74	121.40
Support 1	1.3081	1.5491	77.53	0.9291	1.0195	0.9983	0.7561	101.92	120.63
Support 2	1.3029	1.5446	77.34	0.9252	1.0162	0.9938	0.7528	101.52	120.25
Support 3	1.2976	1.5400	77.15	0.9213	1.0129	0.9894	0.7494	101.11	119.86

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

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