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Dukascopy Market Review, US Session, 3rd November

Previous session overview
The dollar was substantially higher Tuesday morning as stock markets retreated and investors backed away from risk-sensitive currencies.

Some currencies faced their own specific negatives, with the Australian dollar receding after a dovish policy statement from that country's central bank, while the U.K. pound was burdened by another round of negative news from that country's banking sector.

But the dominant theme in currency markets Tuesday was another wave of concern about risk, analysts said.
The Dollar Index, a trade-weighted basket of six currencies, was at 76.650, down from 76.347 late Friday.

In an accompanying statement, the RBA dented expectations for a series of further hikes ahead. It hinted that a December rise is not guaranteed, partly because of the strength of the Australian dollar. The statement dragged the so-called Aussie down from the USD0.9080 area to a session low of USD0.8917, particularly as some economists had expected the RBA to produce a half-point rate rise. It is currently around USD0.8974.

The U.K. pound dropped as low as USD1.6262, its lowest level since Oct. 26, after the government said it would inject GBP31.2 billion of new taxpayer money into Royal Bank of Scotland Group PLC (NYSE:RBS) and Lloyds Banking Group PLC (LLOY.LN) as part of a revamp of the banking system and the long-awaited asset protection scheme.

USDJPY sidelined in recent activity, the pair having recovered slowly from a European session dip to JPY89.87 for current trade around JPY90.30, the pair buffeted by the twin forces of yen and dollar strength as players pare back risk positions, liquidity overnight not helped by a Japanese market holiday.

Market expectation
EURUSD ebbing lower as risk-appetites are pared in light flows, euro easing to USD1.4635 area now as US stock futures edge slightly lower again. Euro earlier said to have encountered sovereign demand near the lows, although traders say "they have been buying all day," and here we are. Bids remain to USD1.4620, further at USD1.4600 area.

USDJPY order books said relatively sparse at nearby levels, some stops noted below the overnight low, on a break of JPY89.80, while supply seen at a distant JPY91.00 area, some stops ahead at JPY90.70 and perhaps also just above the JPY90.49 overnight high.

With the high degree of interest on the buy side and weak equities despite solid earnings reports it should be obvious that the markets are voting that the FOMC will surprise the markets with some sort of tightening soon. Analysts say look for US data the next few days to be neutral for equities and traders to liquidate their risk trades driving the USD higher into the end of the week.

Dukacopy Currency Trading