Market Update
The Dollar was the worst performing currency again last week, with the EUR/USD briefly reaching above 1.40 and AUD/USD breaking above its 2008 high of 0.985. Ongoing expectations that the Federal Reserve will increase quantitive easing in November conitnue to weigh on the Dollar. The long term valuation model from Goldman Sachs suggests that the US Dollar is expected to see further weakness short term, and may test the last previous major low – the 2008 low which is currently $5 from the current price level.

The Pound continues to be heavily weighed down against its major counterparts – last week we were advising buyers into the Euro to cover positions and this still remains the key recomendation as Sterling has lost almost 5 points in a month against the Euro, a clear sign that every man and his dog is short selling the Pound. Today the market consolidated around the 1.1450 level, this still presenting an excellent sell for any Euro sellers. Having now broken clear of the July lows around 1.1700 we are now very concerned that Sterling is once again teetering on the brink of a big sell off. We advise clients to consider covering any Euro requirement now, or consider placing a stop order below the market to protect against continued downside. Against the AUD and NZD the Pound is trading towards the lows, again the market presents an excellent price for sellers however buyers should consider protective “Stops” as both the Australian Dollar and New Zealand Dollar continue to heavily track risk and over the last week have gained significantly. High rates and US Dollar weakness should support the Australian Dollar but strength is limited by its overvaluation.

Looking at the most heavily traded pair in the market we expect that further weakness in the EUR/USD is likely to be limited. The IMF and the World Bank meetings may calm the concerns about “Competitive Devaluation” that have supported the Euro recently, while a slowdown in the Euro zone growth should cause the Euro to lsoe some value in the next year. GBP/USD is likely to be kept rangbound over the months ahead as fears about Quantitive easing in the UK persist, but we maintain a bullish outlook for the Pound longer term. Further strength in the Japanese Yen is likely to be limited by further interventions and the policy easing this week (Interest rates cut to 0.0%) supports the longer term outlook for weakness with the Yen.

Data due over the course of the week will have a big impact on the dollar, in particular Friday’s release of the retail sales report for last month, as well as the preliminary Michigan sentiment survey for October. Both should provide some insights into how the US consumer is holding up in the face of ongoing weakness in the labour market. The first of the October manufacturing sentiment indices (Empire State Index) is also due and any weak numbers are likely to weigh on the USD. Sterling has started the week remaining under pressure versus the euro after briefly trading through the Stg0.88p level late last week. The GBP remains weighed down by the prospect of further action from the BoE, with this week’s round of data which includes the BRC retail sales survey for September, providing some insights. Versus the dollar, sterling has stared the week just below the $1.60 level as it too benefits from the broad based sell off in the US currency.

If you would like to discuss your requirement buying into any of the 32 most actively traded currencies do not hesitate to give me a call on my direct line +0044 1736 335264.

Tom Trevorrow

Senior Trader

Tel: +0044 1736 335264

Email: tom.trevorrow@torfx.com