… Bank of Japan in combating deflationary pressures still existent in the economy.

Technically Speaking
The dollar doesn't seem to know where to stop against the yen. A fresh
26-month high moves the pair beyond the 50.0 fib level at 118.45 of a
three year long retracment. In most cases, the momentum through such a
significant level would ride high, but a subsequent 38.2 fib of an even
longer and more relevant retracement is containing any exuberance at
119.20. A quiet retest of the former resistance at 118.40 is likely in
order with the rising bottom channel line – currently at 117.50 – being
a firmer level for returning dollar bids.

AUDUSD

Bond Yield Gap Narrowed
Traders pared back long positions in the Australian dollar today as the
short term bond yield gaps between the U.S. and Australian two-year
notes narrowed to a four year low. Reduced to 77 basis points, the gap
once stood at 198 basis points at the beginning of the year. With the
Australian economy plateauing and further interest rate hikes seemingly
unnecessary, traders continue to hammer the underlying major with
favoritism leaning to the greenback. U.S. interest rates are speculated
to continue their rise going into yearend compared to an already twelfth
increase by Federal Reserve officials in attempts to head off nascent
inflationary pressures. The concept of a narrowing gap has already
pushed the Aussie 6.7 percent lower against the U.S. currency on the
year.

Technically Speaking
The aussie dollar pushed to a fresh yearly-low against the greenback in
trading today after breaking short-term support at 0.7285. Dollar
bidding is likely to slow however as a confluence of two fib levels
marks heavy support. A 23.6 fib level of a three-year retracement lies
at 0.7250, sharing the level with a 38.2 fib of last years large dollar
rally. Looking north brings the former support at 0.7285 as near
support with a more aggressive bids for another dollar rally coming at
the upper bound of the falling channel currently residing at 0.7325.

EURUSD

Dour Data Again
Adding to already downward pressure on the single currency, economic
data for the Euro zone was mildly unimpressive contrary to recently
hawkish statements issued by policy makers. For the month of October,
Italian consumer prices remained in line with expectations as industrial
production fell for the month of September. Expected to dip 0.6 percent
on the annualized figure, output in the region has fallen 1.6 percent.
This annual decline hardly warrants any interest rate considerations and
proves considerable issue of jawboning by European officials in recent
days. Additionally, doubts have been expressed by experts over the
effectiveness of the newly instated Grand Coalition government in the
region's largest economy. Formerly introduced late last week, the
Coalition has already mentioned legislation of increased taxes, namely
the VAT and the wealth tax. Dubbed an economic disaster, the new taxes
would effectively curb any potential in future spending by consumers
domestically as well as increase difficulties for already depressed
producers.

Technically Speaking
Pairs reaching fresh levels today have found their leader in the
EURUSD, which moved to a two year low. Moving into the area, that price
action hasn't seen in months provides problems when looking for solid
technical levels. While a 50.0 fib of a less important retracement is
currently within a stone's throw at 1.1635, a more likely level to test
will be 1.1600/1585 which pulls a psychological level together with a
38.2 fib of the five year euro rally. Multiple tests of the intraday
level at 1.1795 will likely cap an attempt by euro bidders to turn the
pair around. What is without doubt however is that the EURUSD pair has
plenty of room to move within these bounds.

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