USD Drifts Higher As Sentiment Declines

The US dollar drifted higher through a relatively quiet NY session as sentiment declined. Of the G10 currencies, the British pound underperformed following comments from Osborne that the UK recovery is taking longer than hoped and that it is not realistic to cut the budget at a faster pace.

The Japanese yen outperformed the USD once again as a haven amid a drop in risk. While we are bullish on the outlook for the JPY, traders should be cautious of the potential for intervention from Japanese officials. Rumors of official action made the rounds today as the Nikkei reported that Japan is ready for decisive action on the yen, citing the Ministry of Finance’s Nakao.

Markets were closed in Canada due to a holiday and bond markets in the US were closed for Columbus Day. US equity markets were open and edged lower with the Dow Jones Industrial Average falling by about -0.19% on the session while the S&P 500 declined by around -0.35% on the day.

EUR/USD back below 1.30
The EU finance minister meeting in Luxembourg provided little new insight. Germany’s Schaeuble reiterated that Spain does not need assistance, Italy’s Grilli reiterated that Italy has no current plans to ask for aid, and the Netherland’s De Jager expressed support for austerity. Finance ministers also indicated that Slovenia may need EU aid and that Cyprus is likely to ask for financial assistance as well. European sovereign yields moved higher as markets continue to wait on a possible aid request from Spain and troika report out of Greece.

EUR/USD is back below the 1.30 figure as the pair moved lower ahead of key long-term bear channel resistance. The 21-day simple moving average (SMA) around the 1.2950 looks to be short-term support ahead of the pivotal 200-day SMA above the 1.28 figure. We expect the pair to continue to consolidate in its recent range and be driven by the policy response in Europe. Tomorrow, German Chancellor Merkel will travel to Athens to meet with Greek Prime Minister Samaras and Spain’s Rajoy will meet French President Hollande on Wednesday.

USD/ZAR surges to highest since 2009
South Africa’s rand (ZAR) fell to a 3-year low against the dollar amid continued labor unrest. Elevated uncertainty in the country as strikes spread sent USD/ZAR to nearly 9.00 before settling at current levels of around 8.87. As tensions remain high, the rand is likely to remain under pressure and investors may shift to safer alternatives as they reduce exposure to South Africa.

Data Watch
The International Monetary Fund (IMF) will release its World Economic Outlook report shortly and is likely to revise lower its projections for global growth. Due out of the Asia/Pacific session are New Zealand September card spending figures and QV house prices as well as the 3Q NZIER business opinion survey results. Japan will see the release of its August current account figures, September bankruptcies, and Eco Watchers surveys while Australia sees the NAB business confidence and conditions for September.

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