Greenback Plunges on Bad News

The dollar plunged Thursday as US initial jobless claims surged to a 26-year high and the US trade deficit unexpectedly widened in October on declining exports. US stocks had a late sell-off after lawmakers said the auto industry bailout plan lacks the votes to pass the Senate. The dollar and yen did not have the usual safe haven benefit from the stock market decline. The USD/JPY fell, testing the 91-92 area support. However, the yen, not getting any support from the US negative economic news, declined versus the other major currencies. The dollar's general outlook darkened as several important technical levels were broken against other key currencies. Sterling rose against the greenback and broke its 2-month downtrend; however, the pound touched a fresh all-time low against the euro after the Confederation of British Industry said production expectations remained mired at their weakest level since 1980. The commodity currencies advanced as gold and commodity prices gained. The USD/CAD broke the 1.25 support. The AUD/USD rose, testing its 4-month downtrend. The Swiss franc gained against the weak greenback but dropped versus the euro and yen after the Swiss National Bank reduced its policy rate 50 basis points to 0.50%.

The EUR/USD rocketed through the 1.31 resistance after European Central Bank Executive Board member Jürgen Stark signaled the ECB is unlikely to cut interest rates aggressively. The pair had been trading sideways since late-October building a base between the 1.24 and 1.31-area. There is significant resistance from the long-term downtrend. If this is broken, the EUR/USD may rally to 1.40.