Daily Report: Dollar's Retreat Continues as Markets Back from Holiday

Dollar's retreat continues today as markets are back from holiday. Australian dollar is having the strongest recovery so far, helped by broad based rally in Asian stocks. Investors are a bit more optimistic after solid industrial production data from Japan. Industrial production rose 2.6% mom in November, fastest pace in 6 months. Momentum in production is expected to continue as recovery in China, Japan's largest trading partner, continues next year. Retail sales recovered by rising 0.2% mom in November, after a -0.9% drop in October. Consumer spending is still fragile and the sustainability of Japan's recovery is still heavily dependent on exports.

Technically, dollar index made a short term top at 78.45 last week and the consolidations from there would extend further in near term. Deeper pull back might be seen to channel support at 76.91. But downside should be contained well above 75.58 resistance turned support and bring rally resumption. Rise from 74.19 is expected to develop in to a five wave sequence and should target 38.2% retracement of 89.62 to 74.19 at 80.08 in the least bullish scenario.

DXY

Looking ahead, markets will remain thin in this holiday shortened week. On the data front, main focus will be on German CPI and US consumer confidence on Tuesday; Eurozone M3, Swiss KOF on Wednesday; UK nationwide house price and US jobless claims on Thursday.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.8785; (P) 0.8822; (R1) 0.8863; More

A short term bottom is in place in AUD/USD at 0.8734 with mild bullish convergence condition in 4 hour MACD. Recovery from there is still in progress and might extend further to neckline support turned resistance (now at 0.8977) but upside should be limited by 0.9013 resistance and bring fall resumption. On the downside, below 0.8808 minor support will suggest that such recovery is finished and flip intraday bias back to the downside. Break of 0.8734 will target 23.6% retracement of 0.6008 to 0.9404 at 0.8603 next.

In the bigger picture, the break of 0.8915/8945 support zone confirm the bearish case that AUD/USD has already topped out at 0.9404 in medium term, by completing a head and shoulder top (ls: 0.9326, h: 0.9404, rs: 0.9321). Deeper decline should now be seen to correct the whole rise from 0.6008 and should target 0.7702/0.8626 support zone. Nevertheless, strong support should be seen there, at lease initially, and bring rebound. On the upside, break of 0.9193 resistance is needed to invalidate this view. Otherwise, outlook will remain bearish.

AUD/USD

Economic Indicators Update

GMTCcyEventsActualConsensusPreviousRevised
23:50JPYIndustrial Production M/M Nov P2.60%2.50%0.50% 
23:50JPYIndustrial Production Y/Y Nov P-3.90%-4.30%-15.10% 
23:50JPYRetail Trade M/M Nov0.20%0.10%-0.90% 
23:50JPYRetail Trade Y/Y Nov-1.00%-1.00%-1.00% 
  UK CA Holiday  

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