*** Currency Market Analysis 01-11-2011 ***

[The Machine]

The US dollar is strongly bid this morning. Risk aversion continues to dominate markets after a weak North American session yesterday saw that sentiment trickle into the Asian and European sessions overnight, aided by a Reserve Bank of Australia interest rate cut, weaker-than-expected Chinese manufacturing data, and of course renewed worries about the likely success of the European Union’s debt crisis containment plan. Looking ahead, US ISM Manufacturing, Construction Spending, and Vehicle Sales are on tap in North America.

Overnight Highlights

The market’s risk-off mood continued after the Reserve Bank of Australia (RBA) cut interest rates for the first time since April 2009, lowering borrowing costs to 4.5%. RBA Governor Glenn Stevens stated “moderation in the pace of global growth” and “contained inflation” as reasoning for the cut, adding that the bank now believes that growth will remain as expected through 2013. The AUD gave up as much as 1.2% on average against the majors, with the AUDUSD bearing the brunt of the Aussie’s losses.

Adding to the market’s negative sentiment was a government report showing that China’s manufacturing sector growth slowed last month as the economy continued to cool in the face of the government’s attempts to rein-in stubbornly high inflation. The official Purchasing Managers' Index (PMI) dropped to 50.4 from 51.2 in September. A figure above 50 indicates expansion in manufacturing activity, while a figure below 50 means a contraction. This month’s reading was the lowest since February 2009.

The final nail in the coffin for the overnight session came after Greek Prime Minister George Papandreou announced that Greece will put the new European Union debt crisis containment plan announced last week to a national referendum. This, coupled with worries about Europe’s ability to secure outside funding to leverage the EFSF bailout fund, added to the market’s trepidation after yesterday’s report from China’s state-run Xinhua news service saying that China can’t be the EU’s “saviour.” Oddly, China’s perceived status as the EU’s saviour was a major reason for the market’s explosive rally last week.

USD Stands Alone as Safe Haven

Today’s exaggerated strength in the USD highlights the market’s current lack of options when it comes to alternative safe haven currencies. With the Swiss franc having been eliminated from the equation after the Swiss central bank’s intervention, and the latest actions by the Japanese Ministry of Finance to curb the appreciation of the yen in risk-off markets, the US dollar is now the only currency which is capable of handling safe haven flows without the threat of policymaker interference. We can therefore expect that, should November prove to be the opposite of October as far as risk aversion is concerned, the subsequent strength one would expect in the USD should be more pronounced than in the recent past.

Have a great week!

[Francie26]

The US dollar is strongly bid this morning. Risk aversion continues to dominate markets after a weak North American session yesterday saw that sentiment trickle into the Asian and European sessions overnight, aided by a Reserve Bank of Australia interest rate cut, weaker-than-expected Chinese manufacturing data, and of course renewed worries about the likely success of the European Union’s debt crisis containment plan. Looking ahead, US ISM Manufacturing, Construction Spending, and Vehicle Sales are on tap in North America.

Overnight Highlights

The market’s risk-off mood continued after the Reserve Bank of Australia (RBA) cut interest rates for the first time since April 2009, lowering borrowing costs to 4.5%. RBA Governor Glenn Stevens stated “moderation in the pace of global growth” and “contained inflation” as reasoning for the cut, adding that the bank now believes that growth will remain as expected through 2013. The AUD gave up as much as 1.2% on average against the majors, with the AUDUSD bearing the brunt of the Aussie’s losses.

Adding to the market’s negative sentiment was a government report showing that China’s manufacturing sector growth slowed last month as the economy continued to cool in the face of the government’s attempts to rein-in stubbornly high inflation. The official Purchasing Managers' Index (PMI) dropped to 50.4 from 51.2 in September. A figure above 50 indicates expansion in manufacturing activity, while a figure below 50 means a contraction. This month’s reading was the lowest since February 2009.

The final nail in the coffin for the overnight session came after Greek Prime Minister George Papandreou announced that Greece will put the new European Union debt crisis containment plan announced last week to a national referendum. This, coupled with worries about Europe’s ability to secure outside funding to leverage the EFSF bailout fund, added to the market’s trepidation after yesterday’s report from China’s state-run Xinhua news service saying that China can’t be the EU’s “saviour.” Oddly, China’s perceived status as the EU’s saviour was a major reason for the market’s explosive rally last week.

USD Stands Alone as Safe Haven

Today’s exaggerated strength in the USD highlights the market’s current lack of options when it comes to alternative safe haven currencies. With the Swiss franc having been eliminated from the equation after the Swiss central bank’s intervention, and the latest actions by the Japanese Ministry of Finance to curb the appreciation of the yen in risk-off markets, the US dollar is now the only currency which is capable of handling safe haven flows without the threat of policymaker interference. We can therefore expect that, should November prove to be the opposite of October as far as risk aversion is concerned, the subsequent strength one would expect in the USD should be more pronounced than in the recent past.

Have a great week!

I am a retired English professor, and I love your writing. Not necessarily what you say or your topics, just the writing, itself. It is a thing of beauty, a sight to behold.

[diligent1]

Thanks Machine. Been playing in metals a bit....watching the detachment with USD....

The volatility makes for exciting times !

[The Machine]

Thanks guys +1 for both of you .....

diligent1 -- I play the metals too, I've put a few posts in the metals section early this morning you might be interested in.

and a nice little piece in the off topic section called " Education and the Zoo Economy "

Enjoy

[PA10]

I've never seen the 'Members Sentiments' for the USD/IQD at 100% Bullish before! Very interesting! Not sure it means too much however.....

http://www.forexpros.com/currencies/usd-iqd-technical