• Dollar Posts its First Decline This Week, Fear Keeps it Elevated
• Euro Flirting with Disaster as Help Receding, Market Awaits Downgrades
• Swiss Franc: Don’t Expect the Franc to Continue Rally after SNB Hold
• British Pound May Ultimately Suffer for EU Rescue Spat
• Canadian Dollar Held back by Oil Tumble, Record Low Yields
• Japanese Yen Weathers Tankan, EU Crisis Repercussions Loom
• Gold Finally Bleeds Selling Momentum, Liquidation Over?

Dollar Posts its First Decline This Week, Fear Keeps it Elevated

As expected the dollar’s impressive bull run this week has tempered its pace just before having to make a serious decision on a much larger trend. Not at all surprising, the same hesitance was seen from the S&P 500 Index and other sentiment-based assets that are on the cusp of open-range bear trends. Rather than looking immediately to price, we should consider the health of momentum and volatility. Rather than see an immediate reversal in the underlying sentiment trend, the markets have shown a sense of consolidation. With both theDow Jones FXCM Dollar Index and benchmark stock index tracing out their smallest daily ranges in over a week, we are starting to see activity that fits the mold of conviction that currently exists in the broader markets. If we look volume figures on the S&P 500 or EURUSD futures, we find volume figures slip back into the steady deteriorating trend of turnover over the past three months.

There is considerable risk to the global financial markets (a boon to the safe haven dollar) moving forward, but how likely is it that we see credit markets freeze and rapid deleveraging hit the market in the next two or three weeks? That is the question the masses are struggling with now. Fear of unforeseen risk is heavy but so too are the expectations for seasonality effects. Historically, the capital marketsthrottle down in this period as trading books are balanced and many market participants check out for the end of the year. At this point, it is clear that traders will have to at least keep an eye on this market and be ready to act. The risk is made even more apparent when we consider the uneven performance in capital markets between Europe and the US. The S&P 500 is off 3 percent for the year while its German equivalent (choosing the safest economy in the region) is down 17 percent. This divergence highlights the crux of the problem: the risk of the EU’s financial troubles turning into a global crisis is far from being fully priced in. And, it is these fundamental mispricings that lead to big market shifts.

Policy officials recognize that stable market is 99 percent perception and confidence; which is why New York Fed President Dudley played down the Fed’s swap lines this past session. The central banker said the US has a “range of tools” at its disposal to ensure liquidity, but he currently sees no sign that US banks are facing funding issues. The credit lines the Fed has opened to other regions like the EU, he suggested, are merely to help Europe. Furthermore, he did not expect they would provide any additional support. The central banks director of international finance seems to be a little more grounded in reality though when he said financial stress is clearly spreading to the US. The risk is that a development that can’t be ‘spun’ with optimism passes the wires. Clearly Fitch’s downgrade on 9 global banks isn’t enough, but something is.

Euro Flirting with Disaster as Help Receding, Market Awaits Downgrades

The reassuring voices from the European government are starting to quiet as markets themselves stabilize. Yet, this is probably not the time to ease up on verbal support. Over the past week, we have seen the market punch holes in the EU’s newest comprehensive rescue, the ECB shoot down an outright asset purchasing program and Fed Chairman Ben Bernanke tell Congress that there are no plans to offer further support to the EU or European banks. In the meantime, the Spanish bond auction this past session can further find an encouraging interpretation. The 4.02 percent yield on the 5-year note was a significant drop from the previous 5.28 percent draw (suggesting lower concern), but these rates are still extraordinary on a historical basis and the acceptance of twice the capital initially planned reads like fear of future market issues. It seems we await a catalyst to tip the scales of sentiment. A downgrade could do just that. France in particular is a concern after recent, heavy protesting.

Swiss Franc: Don’t Expect the Franc to Continue Rally after SNB Hold

The Swiss National Bank went for the more conservative approach at its policy meeting. Instead of taking the next step to support growth, the policy authority decided tokeep the ceiling on the franc at 1.20 euros. It is easy to forecast the outcome of an increase the EURCHF exchange rate target; but less clear how a hold would play out. Clearly, there was considerable pressure on the currency leveled by the concern that the SNB could raise the floor; because the absence of this manipulation led to a sharp rally. However, that does not prevent future changes.

British Pound May Ultimately Suffer for EU Rescue Spat

There is a very public quarrel that has broken out between the UK and French authorities. ECB member Noyer (also head of the French central bank) parried growing concerns of an impending downgrade for France into a statement that the UK should be cut. The ire has arisen from Prime Minister Cameron’s decision to not agree to last week’s EU proposals. Yet, a spill over crisis for the Euro Zone will hit likely hit the UK first.

Canadian Dollar Held back by Oil Tumble, Record Low Yields

It is sometimes difficult to reconcile the Canadian dollar’s role as an investment currency. With a benchmark yield that is at a significant discount to its Australian and New Zealand counterparts, the loonie seems out of place. This is especially true now with market rates for all these countries are tumbling (the Canadian 10-year yield hit a recent record low) and Canadian’s trade namesake (oil) has also collapsed this week.

Japanese Yen Weathers Tankan, EU Crisis Repercussions Loom

The quarterlyTankan figures are an important gauge for business sector activity in Japan; but standard economic updates from the country seem to fall on deaf ears for FX traders. An extremely low yield and country flush with cash provides it that luxury. If we want to see the yen come to life, we should look for European troubles to spark wholesale risk aversion (to Japan) or outright intervention.

Gold Finally Bleeds Selling Momentum, Liquidation Over?

Having tumbled aggressively over the past three consecutive trading days, gold has crashed through multiple levels of general support. However, the further this decline extends the more committed market participants have to be in a major bear trend. That is difficult given the recent stall in risk trends and gold’s role as an alternative to government-backed assets. However, in a pinch; gold converts to dollars easily.

For Real Time Forex News,visit:http://www.dailyfx.com/real_time_news/

**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
7:45	EUR	French Own-Company Production Outlook (DEC)		-6	French surveys showing continued concern for European debt crisis on the economy
7:45	EUR	French Business Confidence Indicator (DEC)	93	95
7:45	EUR	French Production Outlook Indicator (DEC)		-35
10:00	EUR	Euro-Zone Labor Costs (YoY) (3Q)		3.6%	Rising costs may not warrant tightening
10:00	EUR	Italian Current Account (euros) (OCT)		-3530M	Deficit expected to widen
10:00	EUR	Euro-Zone Trade Balance s.a. (euros) (OCT)	0.5B	2.1B	Eurozone trade balance may reflect faster falling exports than imports on industry weakness
10:00	EUR	Euro-Zone Trade Balance (euros) (OCT)	1.0B	2.9B
13:30	CAD	International Securities Transactions (CAD) (OCT)	7.25B	7.35B	Demand for Canadian securities remains robust
13:30	USD	CPI Ex Food & Energy (MoM) (NOV)	0.1%	0.1%	Non-core inflation remains high, could warrant FOMC tightening if economy continues to improve
13:30	USD	CPI n.s.a. (NOV)	226.2	226.421
13:30	USD	CPI Core Index s.a. (NOV)		226.444
13:30	USD	CPI (MoM) (NOV)	0.1%	-0.1%
13:30	USD	CPI (YoY) (NOV)	3.5%	3.5%
13:30	USD	CPI Ex Food & Energy (YoY) (NOV)	2.1%	2.1%

GMT	Currency	Upcoming Events & Speeches
8:00	EUR	Draghi, King, Bini Smaghi, Visco, Regling at Rome Conference
16:15	USD	Fed's Evans Speaks on Econometric Policy Tools in Italy
17:00	USD	Fed's Fisher Speaks on Economy in Austin

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	13.8952	1.8776	8.4188	7.7813	1.3088		Spot	6.9744	5.7081	5.9916
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	1.3228	1.5697	78.65	0.9553	1.0482	1.0091	0.7661	102.99	122.38
Resist. 2	1.3176	1.5651	78.47	0.9515	1.0449	1.0047	0.7628	102.61	122.00
Resist. 1	1.3124	1.5606	78.28	0.9477	1.0415	1.0004	0.7594	102.22	121.63
Spot	1.3021	1.5515	77.91	0.9401	1.0349	0.9916	0.7528	101.45	120.88
Support 1	1.2918	1.5424	77.54	0.9325	1.0283	0.9828	0.7462	100.68	120.13
Support 2	1.2866	1.5379	77.35	0.9287	1.0249	0.9785	0.7428	100.29	119.75
Support 3	1.2814	1.5333	77.17	0.9249	1.0216	0.9741	0.7395	99.91	119.38

v

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

Tocontact John, email This e-mail address is being protected from spambots. You need JavaScript enabled to view it .Followmeon twitter at http://www.twitter.com/JohnKicklighter

To be added to John’s email distribution list, send an email with the subject line “Distribution List” to This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

Additional Content:Money Management Video

Trading the News Video