Dollars 2 Pounds

US Dollar Remains in Downtrend After Fed Reiterates Dovish Stance
Euro May Regain Fundamental Control with its Own With GDP Numbers
Japanese Yen Awaits the Signal for Risk Appetite to Finally Reverse
British Pound Could See Breakout Versus Euro, US Dollar
Swiss Franc May Decline as Path Clears for Risk Correction
Canadian Dollar: Options Markets Show Clear Risk of USDCAD Rallies
Australian Dollar Rally May Continue if Risk Appetite Remains in Play
New Zealand Dollar May Be Weighed By Weak Domestic Demand

For detailed analysis by currency pair, please visit our dedicated Forecast Page.

Gold would seemingly defy both the general pace of risk appetite and logic Friday after the release of October’s non-farm payrolls. In the past weeks and months, the precious metal has developed a significant, positive correlation to the Dow Jones Industrial Average and other equity benchmarks. However, whereas stocks would initially plunge and eventually stabilize after the market-moving data crossed the wires; spot gold would actually rally to a new record high just above $1,100 an ounce.

Most of the yen crosses are developing very broad but very clear ascending wedge formations. This is fundamentally and technically unique as many of the other risk-sensitive pairs and markets have shown relatively tight congestion over the past few weeks at the very top of bullish trends. This is not a small break from the norm in any sense; and suggests the looming threat of a breakout or reversal in risk appetite and many of the markets won’t necessarily translate into this currency’s cadre.

The Australian dollar dominated the FX markets over the past week after the Reserve Bank of Australia raised rates by 25 basis points to 3.50 percent, and went on to report that the economic would expand by 1.75 percent this year and 3.25 percent in 2010, compared to previous forecasts for expansions of 0.5 percent and 2.25 percent, respectively.

•    Canadian Dollar Dives Despite Other Commodity Dollar Rallies as Economy Unexpectedly Loses 43,200 Jobs in October
•    Euro Lags Following Cautious Comments from ECB’s Nowotny, Gonzalez-Paramo
•    British Pound Gains Against Dollar as UK Producer Prices Rise for Eighth Month

With much of the biggest US event risk for the month out of the way, the coming week will present an opportunity to focus on the euro and British pound. Indeed, the Q3 GDP report for the Euro-zone may show that the region started to emerge from recession, while the Bank of England’s Quarterly Inflation Report will provide clues of the central bank’s stance on monetary policy. Not to be forgotten, the German ZEW survey, Australian employment change, and University of Michigan consumer confidence reports could all have an impact on FX trade.

Speculators have started covering US dollar short positions and selling Euro, AUD, NZD, CAD, and CHF long positions. The evidence is US dollar bullish.

The US dollar declined this week following its strong advance the prior week. Is the decline a consolidation of gains or the beginning of the next leg of USD weakness. The EURUSD and AUDUSD have held their respective channels but the NZDUSD has broken its well-defined channel that had held since March. 1.5060 and 1.4625 are the longer term pivots for the EURUSD.

EURCAD and EURNZD patterns are especially bullish while the Yen crosses remain mixed.  It is not surprise that the CADJPY and NZDJPY patterns offer the most reversal evidence among the Yen crosses.

Short term Swissy Rally Could Lead to Bigger Drop

The greatly awaited NFP unemployment report has come and gone. Now traders are asking:

Have we finally reached a bottom of USD/CHF?

Is it time to buy on future Dollar strength?

One of the great things about being a DailyFX Course Instructor is that I get to work with people who are making a commitment to improve as traders.  One of the things they ask us is what is the difference between a new trader and a professional trader. 

Our answer is this:
 

The US dollar is slightly weaker against most major currencies but trend defining levels have not been broken. For the EURUSD, that level is the October high of 1.5065.

Despite volatility following the US Non-farm payroll report the EUR/USD continues to trade within its current range. The pair has seen relatively little movement this past week considering the monumental event risk that it faced. Next week’s EZ GDP and CPI reports may be market moving but until their release on Friday, we could see the euro trade in a defined range.

Momentum was still the primary element of price action for gold Thursday. Extending the aggressive rally following the Indian Central Bank’s large gold purchase from the IMF this past Tuesday, the metal was attempting to close a fourth consecutive advance (but struggling to do so as risk appetite wavers).

The Labor Department reported that US non-farm payrolls fell by 190,000 in October, which was the smallest drop since August 2008, but was also slightly worse than forecasts for a drop of 175,000.

Swiss Unemployment rose to 4.0% in October from 3.9% the month prior, while the seasonally adjusted jobless rate remained unchanged at 4.1%, marking the highest level since April 1998, the State Secretariat for Economic Affairs in Berne said today.

The Euro has started to give back earlier gains after failing to hold above 1.49000, as we have started to see dollar strength ahead of the U.S. labor report. A 1.0% improvement in September German factory orders failed to maintain bullish sentiment despite output improving for a seventh straight month.