Forex: US Dollar Losses May Prove Short-Lived Despite Resilient ISM Report 

TAKEAWAY: November’s US ISM data may further a pickup in risk appetite as expectations call for only minor moderation after Hurricane Sandy, but ‘risk-on’ moves remain questionable with key event risk looming.

While the upcoming US ISM data may show a degree of resilience in the US economy following super-storm that Sandy, ominous headwinds remain and may limit the potential for 'risk-on' moves. The November manufacturing figure is set to cross the wires at 15:00 GMT, with the consensus view appointing to a decline to 51.5 from October’s reading of 51.7. The result would still indicate expansion, but at a slightly slower pace.

Better-than-expected Chinese manufacturing data drove increased risk appetite overnight, denting demand for the safe-haven US Dollar. Greece’s move to begin a debt buyback that paves the way for access to further bailout funding likewise helped. However, forex traders are still all-too-wary of the many question marks surrounding the Eurozone debt crisis and the US ‘fiscal cliff’ debate. As policymakers on both sides of the Atlantic continue to deliberate, lingering uncertainty in markets may swiftly renew safe-haven demand for the US Dollar, capping any additional post-ISM weakness.

Charts

The Dow Jones FXCM US Dollar Index is testing below support at the bottom of a rising trend channel, a barrier reinforced by the 38.2% Fibonacci retracement level of 9,962. A daily close below support is needed to confirm the likelihood of a further selloff ahead.