For weeks we have been watching the euro weigh on Asian stocks. By this point, the link has become so ingrained that bad news in Asia can weigh on the euro. Technical factors are also in play ahead of the U.S. holiday.
China just reported its latest HSBC PMIs, which came in below the critical 50-point boom or bust level. This in conjunction with what appears to be sluggish Chinese market environment should continue to weigh on the Aussie dollar moving forward along with the euro.
The euro was unable to take out the $1.3420 support level earlier in the week and we cautioned traders of a potential pullback rally towards the $1.3700 before the Euro continued its sell off.
The U.S. dollar maintained its strength, the rally never really played out and the EUR/USD is trading below the 1.3420 support level today. Sellers of the euro are stepping in on even the slightest lift putting continued pressure on the EUR/USD and suggesting continued downside ahead.
Traders will be looking for a close below $1.3420 today to confirm the downward euro move, which would in turn open the door for a broader-based rally for the U.S. dollar.
Traders use the euro to help to determine overall directional bias and overall risk appetite for other currencies. Now that the euro — the “risk on” currency of choice — has broken below the $1.3420 support level and continues its slide down towards October’s low, the risk appetite shifts lower and lower.
High-yielding commodity currencies that have done relatively well in recent years are now exposed to selling pressure. The Aussie dollar appears to have the most exposure to the downside as the next leg of global recession fear seems to be spreading to China.
Today will be the last full day of trade in the U.S. forex market with many traders lightening up significantly for the Thanksgiving Day holiday. Although the forex markets will be open globally, the U.S. session is the largest, which can present unpredictable volatility. Traders may want to consider being on the sidelines until normal market conditions resume next week.
Non-forex traders can exposure to U.S. dollar via the Power Shares US Dollar Index Bullish Fund (UUP, quote). This ETF seeks to track the price and yield performance, before fees and expenses, of the Deutsche Bank Long US Dollar Futures index.
The index is comprised solely of long futures contracts. The futures contract is designed to replicate the performance of being long the U.S dollar against the euro, yen, British pound, Canadian dollar, Swedish krona and Swiss franc.