It has been a choppy overnight session, but the net result is that the USD is looking relatively bid (compared to recent standards). A brief surge for higher risk pairs following the release of the latest RBA minutes overnight has proved very short lived – they reiterated their hawkish stance and put the focus on the CPI data on the 27th October by stating that they will act if “risks materialize” and cited the strong AUD as a factor for keeping inflation within the band – with all of the major currencies taking a hit against the greenback since the London close. It seems the market is siding with this view that in the run up to FOMC, with QE so well priced in, taking the USD to further extreme lows may be unjustified for now.

The dollar remains generally firmer, though in tight ranges, versus other majors including the euro. However, further gains are seen as difficult ahead of any details from the Fed on its plans for more QE. In this regard, markets will be paying close attention to comments from a raft of Fed members, including Bernanke, who are due to speak over the course of the day. Also important in terms of setting the tone will be this morning’s release of the German ZEW index for October, which is expected to ease back, reinforcing the view of a slower pace of recovery for the eurozone in H2.

Sterling remains well off last week’s near nine month high versus the dollar, with the GBP vulnerable ahead of tomorrow’s release of the UK government’s spending review, which is set to outline plans for the biggest public spending cuts for decades. Sterling is also being pressured by talk that the Bank of England is moving towards introducing further quantitative easing measures, with tomorrows release of the minutes of the central bank’s last policy meeting likely to shed some light on this. Versus the euro, sterling has given up some of the gains seen earlier yesterday, with the GBP/EUR rate trending back towards Stg0.88p.

Buyers into any of the major currencies need to remain cautious ahead of tomorrows Treasury Spending review and the Bank of England Minutes – we are currently recommending all Euro / AUD/ NZD and USD buyers to either cover positions or work protective “Stop” orders before tomorrow as the markets will be considerably volatile.

Tom Trevorrow

Senior Trader

Tel: +0044 1736 335264

Email: tom.trevorrow@torfx.com