Dollar Index scores a meaningful bullish breakout

US Dollar:

The dollar hit a six-week high against the euro on Monday as worries about Ireland's ability to repay debt and concerns its problems may spread through the euro zone rekindled the greenback's appeal as a safe haven. The surge in Treasury yields also supported the dollar against the yen, pushing the U.S. currency to its strongest level since Oct.5, according to EBS data. The dollar/yen pair has been the most sensitive to move¬ments in bond yields because both currencies compete as the markets' favoured funding unit in carry trades. With yields rising in the United States more than in Japan, the cost of carry in the dollar becomes more expen¬sive. That should prompt investors to use the yen, which offer lower rates and less volatility, to wade back into speculative assets.
DATA : PPI and TIC Long-Term Purchases.

Pound:

Not to be ignored, the Right-move released an indicator that showed a 3.2 percent drop in house prices in October, the biggest since December 2007 and the longest turnover time on record. However, the market easily ignored the weak figure. That said, traders won’t as readily disregard Tuesday’s CPI data. Speculation of stimulus and rate hikes top’s the pound’s personal list of fundamental concerns. The U.K. economy could feel some pain as Irish debt stresses raise concerns over the two countries' strong banking and trade links, but cur¬rency-market insiders are sanguine about any spill over risks to the pound. U.K. banks could take a hit, because they are heavily exposed to once-blossoming Ireland. The U.K. government could also end up contributing to any European Union rescue package for its neighbour. Even as this episode dents the value of the euro, though, currencies experts are relaxed about the risks to sterling.
DATA: CPI, BoE Inflation letter and BoE Gov King speaks

Euro:

The euro fell below $1.36 and is set to remain under pressure in the near term as investors focused on fiscal troubles in Ireland and Portugal and await meetings of European finance ministers today and Wednesday. "The issues in Europe have been very focal the last couple of days and that's lending itself to euro weakness," said Greg Farinella, managing director and head of Treasury and trading at Espirito Santo Investment S.A. in New York. Espirito Santo is the investment banking arm of Banco Espirito Santo, the second largest bank in Portugal. Ireland on Monday denied making any application for funding to shore up the country's finances. But Prime Minister Brian Cowen said the country's high funding cost would make it hard for banks to support the recovery. Ireland's high borrowing costs and large deficit spawned fears of a Greek-style scenario where budget problems in one country plunge the entire euro zone into crisis. Irish officials responded to growing fear of a national financial crisis and subsequent speculation of an impending bailout by stating simply that they had not filed for aid and the government was fully funded through mid-2011. Clearly, this reiteration does not provide investors with a sense of confidence. In fact, it is adding to regional troubles according to the ECB’s Ordonez. Leaving the market in a state of uncertainty balances Ireland between the tarnished reputation of having to look for additional funds and potentially leaving its banking system open to collapse.DATA : German ZEW Economic Sentiment

General:

• All signs point to further gains for the Australian dollar – except for risk appetite trends. Early Monday, the OECD issued a statement warning the RBA to remain vigilant on inflation pressures and the bank’s own minutes on Tuesday supported a sustained hawkish lean.

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