Daily strategy Oct 22 - Euro doubts likely to increase

By IBTimes Staff Reporter | October 22 2009 6:55 AM

Underlying dollar sentiment will remain weak in the short term on fears over medium-term reserve diversification away from the currency and a lack ofyield support. Investors will find it more difficult to find attractive alternatives at current valuations which should stem selling pressure on the currency. There will also be increased European protests over Euro strength. It is also the case that Euro-zone structural fears are liable to increase with risk appetite liable to deteriorate which should curb dollar selling pressure with further short-term dollar support close to the 1.5050 level.

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The currency markets were locked in a familiar pattern during Wednesday with the US currency unable to gain any sustained relief from selling pressure as underlying sentiment towards the dollar remained very weak.

The Fed Beige Book reported that the economy was making modest gains led by manufacturing over the past few weeks with little or no price pressures. Labour markets were described as weak or mixed while credit standards continued to tighten. There was also a reported deterioration in commercial real-estate across all districts which will maintain fears over renewed stresses within the banking sector.

There were no major protests against Euro strength during the day, but the tone of official rhetoric is liable to become stronger and this will remain a barrier to Euro gains, especially as it remains over-bought following recent advances. Once Europe was closed, there was a further Euro advance to 1.5040, but it drifted weaker as Wall Street registered a late downturn and it consolidated just below 1.50 on Thursday.