Market confidence in the US currency will remain generally weak in the short term with speculation that it will be used as a global funding currency. The Euro is liable to be unsettled by renewed stresses within Eastern Europe while increased risk aversion will also provide some underlying dollar backing. Markets will still be looking to sell the US dollar aggressively on rallies with firm near-term Euro buying support on retreats to 1.4460.
The dollar continued to probe support levels beyond 1.46 against the Euro on Friday and weakened for the sixth consecutive day on a trade-weighted basis. The Euro was also struggling to maintain momentum during the day with pressure for a correction after recent strong gains and the net outcome was only a marginally weaker US currency.
The US economic data was stronger than expected with the University of Michigan consumer confidence index rising to 70.2 for September from 65.7 the previous month. The data helped maintain the more robust attitude towards risk appetite seen over the past few days. The dollar will look to gain some degree of protection on yield grounds.
In comments on Friday Euro-group head Juncker stated that the current Euro rate was not a barrier to economic recovery which will dampen expectations of any action to stem any further Euro advance and will also tend to limit corrective retreats. The dollar did secure a firmer tone in Asia on Monday with a move towards 1.4525 on some covering of short positions and a more restrained attitude towards risk given the trade tensions.