The Euro will look for a short-term corrective recovery as fear eases slightly, but rallies will tend to attract selling pressure relatively quickly given the underlying lack of confidence.
In comments on Monday, ECB Chairman Trichet stated that the bank could cut interest rates gain at the November 6 meeting, although it was not certain. While Trichet was relieved that oil prices had fallen and that inflation should fall back towards 2.0% in 2009, he also warned against complacency. Pessimism towards Europe will tend to persist in the near term.
The US new home sales data was similar to the existing home sales data on Friday with a small monthly increase in sales to an annual rate of 464,000 in September from 452,000 previously while there was a further decline in inventories and prices. The consumer confidence data will be watched closely on Tuesday, although the impact may be limited ahead of Wednesday’s FOMC interest rate decision with markets still pricing in a 0.50% rate cut by the Fed.
The Euro rebounded back to above the 1.25 level in US trading as volatility levels remained high with a slight easing of fear curbing immediate dollar demand. Erratic trading persisted on Tuesday with the Euro gaining later support in Asia as stocks rallied from early lows with a move back to around 1.2570 while German consumer confidence edged firmer. The Euro still struggled to gain any robust support.
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