Dollar Marks Time – Tuesday, November 21

The US dollar has largely been confined to yesterday's trading ranges against the major currencies amid light news. The North American session does not hold much hope for fresh impetus. The US reports October existing home sales, which are not typically market moving in the best of times.  Yellen does not speak until after the markets close, and even then is unlikely to sway expectations, which have priced in a rate hike next month.   

There are a couple of exceptions to the inside trading days. First, the dovish twist to the minutes from the Reserve Bank of Australia's recent meeting saw the Australian dollar make a marginal new five-month low of almost $0.7530 before rebounding smartly to push above yesterday's high. A close above $0.7575 would be constructive. Investors seemed to latch out to the RBA's disappointment with the weak wage growth and increased competitive pressure in retailing as restraining prices. However, Governor Lowe's comment that although there is no strong case for a near-term adjustment in policy, the next move is likely appeared to spark the recovery. With the daily technical indicators stretched, we had anticipated that a new low would not be sustained.   

The euro was sold in early Europe, and marginal new lows were recorded (~$1.1715). However, the single currency snapped back quickly. Initial resistance is seen near $1.1760. German politics remains the chief talking point. The German President is sounding out the different parties to see if there is a possibility of a coalition. Initial surveys suggest Merkel is in tune with the public in preferring new elections to a minority government. Both of these options are unusual for modern Germany. 

We suspect talk of the end of Merkel's tenure is greater exaggerated. Survey suggest Merkel's CDU will remain the largest party, and within the CDU, there does not appear to be a compelling alternative. At first, it seemed that a minority government would be preferable to new elections. The fear seemed to be that new elections would see the AfD bolstered, but the initial poll suggests this is not the case. The FDP is seen as a somewhat irresponsible and may suffer on its leader's gamble. The Greens appear to have won a few new supporters.   

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