Dollar finds some legs but the momentum requires risk trends to sustain growth

US Dollar:

The world’s most liquid currency firmed up Thursday after putting in for a trend check the previous session. The technical and fundamental appeal for the dollar is growing wider and wider into the end of the week. Having advanced four of the past five active sessions, the greenback has found itself either pushing or at the cusp of technical resistance. On the other hand, fundamentals haven’t taken a meaningful shift in the cur¬rency’s favour over this period. Yet, meriting constant reiteration, this is a market where value is relative. There doesn’t need to be a particular development to boost the appeal of the dollar. A rally can be borne from the de¬terioration of its peers – or even just one of its major counterparts. As such, we see that on a quiet economic docket, EURUSD has managed to drop below a familiar support in 1.37 and on to a one-month low while AUDUSD has taken the prominent step of easing below parity. That gives us comparison of economic and yield-based counterparts.
DATA : Consumer sentiment.



Pound:

UK Consumer Confidence dropped to a 19-month low in October according to a report from the Nation¬wide Building Society amid brewing concerns about the sustainability of economic recovery as the government’s ambitious austerity plan, a scheme amounting to the steepest budget cuts since World War II, looms every closer. The sterling may seem to be performing well against otherwise weak currencies like the euro and yen but in isolation, the positive sentiment surrounding the stimulus downshift from the BoE inflation report is wear¬ing off. To counter this fading trend, we were met with Chancellor Osborne’s rejection of the IMF’s calls for a contingency plan should the economy falter and a 19-month low in consumer confidence.
DATA : No major data to be released today.

Euro:

The euro was on the defensive Thursday – and for good reason. Financial troubles continue to escalate in the region. The premium demanded to hold Irish and Portuguese government debt ballooned to a record high yet again as concern grew that these struggling economies would not be able to bear their severe austerity measures and sustain a meaningful recovery. Feeding the fire, investors were chewing on comments from Bank of Ireland Governor Honohan that the nation’s bank bailout bill could top 85 billion euros and a turn from French Finance Minister Lagarde to support Germany in a call for bond holds to bear a portion of the cost in possible bond restructuring events. A more tangible threat to the shared currency into the end of the week is the wave of forthcoming growth numbers. Spain already reported a disappointing stall in the 3Q. Today, we will have the bulk of the data. In this, the performance of top-performing Germany doesn’t really matter. The comparison to periphery economies like Portugal and Greece is the real interest given the preoccupation with financial trou¬bles.
DATA : German, French and Italian GDP.

General:
• Even in a scenario where global growth softens and investors withdrawal capital from the stimulus other¬wise risky investments, the Australian dollar is well placed. Growth derived from domestic and external forces has deep roots, not to mention there is a high yield to offset risk. That said, there is always a level of balance in exchange rates. And, perhaps China’s efforts to cool its explosive growth is lowering that bar.

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