EUR/USD Struggle

EUR/USD

The Euro edged back above 1.49 against the dollar in early Europe on Tuesday, but was unable to regain any momentum and was subjected to renewed selling pressure during the day.

Annual Euro-zone money supply growth slowed to 1.8% in September from 2.6% previously while there was a 0.3% contraction in bank lending. The persistent slowdown in monetary growth over the past few months will increase fears over a credit crunch within the banking sector and will maintain pressure for a loose ECB monetary policy to be maintained and this will tend to limit Euro support.

The US housing data was slightly stronger than expected with a fourth successive monthly increase which cut the annual decline in prices to 11.3%.

In contrast, the consumer confidence data was significantly weaker than expected with a decline to 47.7 for October from a revised 53.4 the previous month. There was a deterioration in confidence surrounding current conditions and expectations with the current index at a record low as confidence in the labour market deteriorated. This development is slightly surprising given that the weekly jobless claims data has generally improved and certainly suggests that hiring patterns are particularly weak and will raise concerns over the economic outlook. The Richmond Fed index edged slightly lower for October, but remained in positive territory.

The decline in confidence undermined risk appetite and there was renewed defensive demand for the dollar even though the Dow Jones index was resilient. The Euro dipped to a low around 1.4770 before consolidating near 1.48.