Mid-Day Report: Dollar Soft as Stocks, Gold, Oil Remain Firm

 @ibtimes
on December 28 2009 4:31 PM

Dollar remains soft in early US session as consolidations continues. Strength in gold is giving some pressure to the greenback as the precious metal is holding firm above 1100 level. In addition, crude oil is support by rally in equities and is staying above 78 level. Note that the strength of the rebound from 68.95 has sent crude oil well above 55 days EMA and argue that prior high at 82.0 made in October is not the top yet. Current rally in crude oil might extend beyond 82.0 level and provide some pressure on the greenback in near term.

Talking about crude oil, canadian dollar is the biggest beneficiary of rebound in crude oil. The Loonie is so far the best performer in December, rising over 6% against yen and over 5% against Euro. Following up on EUR/CAD, some consolidations was seen after the cross hit as low as 1.4972 but after all, short term outlook remains bearish with 1.5390 resistance intact. We're still expecting current fall from 1.6006 to extend further to 2008 low of 1.4716 next.

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.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.4328; (P) 1.4373; (R1) 1.4423; More

EUR/USD's rebound from 1.4127 is still in progress and further rise could be seen to 38.2% retracement of 1.5143 to 1.4217 at 1.4571. Nevertheless, upside should be limited by 61.8% retracement at 1.4789 and bring fall resumption. Below 1.4217 will target 38.2% retracement of 1.2329 to 1.5143 at 1.4068 next.

In the bigger picture, medium term rise from 1.2456 has completed at 1.5143 on bearish divergence conditions in daily MACD. Focus now turns to 1.3737 cluster support (50% retracement of 1.2329 to 1.5143 at 1.3736). Decisive break there will also confirm the case that three wave consolidation from 1.2329 has finished at 1.5134 too. In other words, whole medium term term fall fro 1.6039 should be resuming for a new low below 1.2329. On the upside, above 1.5143 is needed to invalidate this view. Otherwise, outlook will now remain bearish.

EUR/USD

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