Dollar in favour as markets stay risk averse.

US Dollar:

The US Dollar should continue to hold firm today against the majors as a rise in Stock Index Fu-tures Point to the Risk Aversion play continuing. This received an added boost after Yonhap News reported that North Korea fired artillery rounds at a South Korean island near the two countries’ disputed Western border. Turning to sentiment, stock index futures are trading sharply lower in late Asian hours, with contracts tracking major European bourses down between 0.4 and 0.9 percent while those on the S&P 500 tick 0.8 percent into the red. This points to continued risk aversion, promising to boost the safety-linked US Dollar against most of its major counterparts. All this uncertainly will lead to markets pursuing a dollar positive policy and should keep cable under the 1.60 level and EURUSD down to the mid 1.33’s and below. On the data front in the US, we have a GDP reading out but this will only confirm previous estimates so shouldn’t create too much volatility.
DATA : USD GDP Q3, USD Existing home sales (OCT), PCE Q3

Pound:

The British Pound fell yesterday as the U.K. pledged to assist Ireland, and fears surrounding the Euro-pean debt crisis continue to be in the headlines. Sterling link to risk is well documented and the current bout of risk aversion is certainly keeping the pound suppressed. The Pound’s own economic is relatively light over the coming 24 hours. The BBA mortgage applications for October is a good step up to a report by Rightmove Mon-day that showed a net 42 percent of Brits expect rent levels to rise – another sign that housing is a major prob-lem for the UK. But, if we are looking for real impact, Ireland’s bailout is significant. Given the level of exposure UK banks have to Ireland, the situation is a real concern. This caused the FTSE 100 in to negative territory yes¬terday with RBS and Lloyds leading the way both down over 4 %. The silver lining to this very black cloud has been EUR weakness, enabling GBP to get back above the 1.17 level and trade as high as 1.1740. The recent highs have been around 1.18 level and further attacks on the Euro could lead the rate back to the 1.20 level.
DATA : BBA Home loans (OCT), BOE Possen speaks

Euro:

The Euro came under increased selling pressure yesterday as Ireland opted to seek a bailout from the EU, and the single-currency may face increased headwinds as the risks for contagion intensify. In response to the bailout, Moody’s Investor Services said that Ireland is likely to face a “multi-notch” downgrade, while Euro-pean policy makers argued that it’s still premature to speculate on the size of the rescue package. In an effort to stem the risks for contagion, the EU announced that Portugal’s banking system is healthy and resilient, but went onto say that the euro-area continues to face an uneven recovery as the governments operating under the fixed-exchange rate system struggle to manage their public finances. There was an initial but brief relief rally from the euro as the threat of an immediate collapse was avoided. The reality of a second EU member having to seek aid six months after the first suggests a third (Portugal?) will come in quick step. This left EURUSD off 2 cents to 1.3580 and enabled GBPEUR to get back above 1.17.
DATA : EUR GDP Q3, FRA PMI (OCT), GER domestic demand (OCT)

General:

FBI searches the offices of three hedge funds on Monday, pushing banking sector shares lower. The searches have fuelled speculation that US authorities are conducting their biggest ever probe into alleged in¬sider trading. Shares in Goldman Sachs, which was named by the report in the Wall Street Journal, were the biggest faller, declining almost 4pc. Goldman declined to comment. The sector was further troubled as Ireland's debt crisis prompted renewed fears over the health of US banks.

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