FOREX: US Dollar Soars As Berlusconi Resignation Rally Unravels

By Ilya Spivak, Currency Strategist

Talking Points

• US Dollar Soars as Markets Rethink Berlusconi Resignation Rally
• S&P 500 Futures Sink, Pointing to Continued Risk Aversion Ahead
• Ben Bernanke Speech Unlikely to Offer Insight on Policy Outlook

The boost to risk appetite following news that Italian Prime Minister Silvio Berlusconi will step down after next week’s austerity vote proved fleeting, with S&P 500 futures sliding and the safe-haven US Dollar trading higher against most of its leading counterparts. As we discussed in detail yesterday , traders were most concerned with the ability of any government – whether it be that of Berlusconi or otherwise – to be meaningfully effective at pushing through deficit-reduction measures to avoid a meltdown in Euro Zone’s third-largest economy as it prepares to roll over €14.9 billion in debt this month. As such, traders initially welcomed the Prime Minister’s resignation announcement because budget cuts would be passed before a government reshuffle .

Sovereign risk was quick to creep back into the markets however, and that is not altogether surprising. Passing austerity measures is not the panacea, with Greece as a case in point. The prospect of early elections – complete with inter-party squabbling and feverish coalition-building – as opposed to the installation of a competent technocrat care-taker government hardly seem s like something that ought to have reassure d the markets . Budget cuts need to be implemented after being passed, and slashing fiscal largesse is all the more difficult when politicians are trying to vie for votes. On balance, t his keeps alive fears that the worst-case scenario for the Euro Zoned debt crisis – a meltdown in a country too big to be bailed out with currently available resources – remains a credible near-term possibility.

The European economic calendar is relatively quiet, with traders looking ahead to a speech from Federal Reserve Chairman Ben Bernanke as the next major bit of scheduled event risk. L ast week’s disappointing ISM manufacturing - and service-sector figures as well as a dovish FOMC outcome rekindled QE3 expectations , with investors now on the lookout for any signs of an emerging consensus favoring further stimulus . With that in mind, Bernanke is scheduled to give welcoming remarks at a conference on “Small Business and Entrepreneurship” with no Q&A to follow, so the possibility that any meaningful policy clues will emerge out of the ordeal seems minimal. US stock index futures are extending losses while the spread between Italian and German 10-year yields as well as periphery Euro Zone CDS rates are pushing higher, pointing to continued risk aversion ahead that stokes the greenback against its sentiment-linked counterparts .

Related : Australian, NZ Dollars Lower After Softer Chinese CPI

Asia Session : What Happened

GMT	CCY	EVENT	ACT	EXP	PREV
21:45	NZD	NZ Card Spending - Retail (MoM) (OCT)	1.5%	0.7%	0.7% (R+)
21:45	NZD	NZ Card Spending (MoM) (OCT)	1.8%	0.6%	0.4% (R+)
23:00	NZD	QV House Prices (YoY) (OCT)	1.2%	-	0.7%
23:30	AUD	Westpac Consumer Confidence (NOV)	6.3%	-	0.4%
23:30	AUD	Westpac Consumer Confidence Index (NOV)	103.4	-	97.2
23:50	JPY	Bank Lending Banks ex-Trust (OCT)	0.1%	-0.2%	-0.3%
23:50	JPY	Bank Lending incl Trusts (YoY) (OCT)	0.0%	-0.1%	-0.3%
23:50	JPY	Current Account Total (¥) (SEP)	1584.8B	1452.2B	407.5B
23:50	JPY	Adjusted Current Account Total (¥) (SEP)	1186.6B	963.2B	652.6B
23:50	JPY	Current Account Balance (YoY) (SEP)	-21.40%	-31.3%	-64.3%
23:50	JPY	Trade Balance - BOP Basis (¥) (SEP)	373.2B	351.7B	-694.7B
0:01	GBP	BRC Shop Price Index (YoY) (OCT)	2.1%	-	2.7%
0:30	AUD	Home Loans (SEP)	2.2%	1.5%	1.2%
0:30	AUD	Investment Lending (SEP)	1.9%	-	1.8%
0:30	AUD	Value of Loans (MoM) (SEP)	0.7%	-	0.6%
1:30	CNY	Consumer Price Index (YoY) (OCT)	5.5%	5.5%	6.1%
1:30	CNY	Producer Price Index (YoY) (OCT)	5.0%	5.8%	6.5%
4:30	JPY	Bankruptcies (YoY) (OCT)	-14.1%	-	-9.2%
5:00	JPY	Eco Watchers Survey: Current (OCT)	45.9	46.5	45.3
5:00	JPY	Eco Watchers Survey: Outlook (OCT)	45.9	-	46.4
5:30	CNY	Retail Sales YTD (YoY) (OCT)	17.0%	17.0%	17.0%
5:30	CNY	Retail Sales (YoY) (OCT)	17.2%	17.6%	17.7%
5:38	CNY	Fixed Assets Inv Excl. Rural YTD (YoY) (OCT)	24.9%	24.7%	24.9%
5:49	CNY	Industrial Production YTD (YoY) (OCT)	14.1%	14.0%	14.2%
5:49	CNY	Industrial Production (YoY) (OCT)	13.2%	13.4%	13.8%

E uro Session: What to Expect

GMT	CCY	EVENT	EXP	PREV	IMPACT
7:30	EUR	Bank of France Business Sentiment (OCT)	96	97	Low
7:45	EUR	French Central Gov Balance (€) (SEP)	-101.0B	-102.8B	Low
7:45	EUR	French Survey of Industrial Investments	-	-	Low
9:30	GBP	Visible Trade Balance (£) (SEP)	-8000	-7768	Medium
9:30	GBP	Trade Balance Non EU (£) (SEP)	-4950	-4867	Low
9:30	GBP	Total Trade Balance (£) (SEP)	-2100	-1877	Low

Critical Levels

CCY	SUPPORT	RESISTANCE
EURUSD	1.3558	1.3879
GBPUSD	1.5895	1.6135

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya , e-mail ispivak@dailyfx.com . Follow me on Twitter at @IlyaSpivak

To be added to Ilya 's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com

Original Article: http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/euro_open/2011/11/09/FOREX_US_Dollar_Soars_as_Berlusconi_Resignation_Rally_Unravels.html