Forex Review – Dollar slips, euro bounces on risk appetite ahead of ECB cash injection

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The euro climbed higher against the dollar in the U.S. trading session  as risk appetite was high, with Wednesday’s European Central Bank LTRO dominating investor sentiment today. The ECB Longer Term Refinancing Operation tomorrow will be the second offer of cheap money, aimed at preventing a credit crunch.

EURUSD bounced to a high of 1.3469, not far from last week’s three month high. Euro had earlier touched a low of 1.3417 after Ireland said it plans to hold a referendum on the European Union’s fiscal treaty. The referendum could trigger uncertainties if the country votes against it. This only briefly dented market sentiment.

U.S. data on consumer confidence helped support risk appetite, as the Conference Board consumer confidence index rose more than expected, to a twelve month high, signalling American consumers are optimistic about the U.S. recovery.

Also helping lift risk currencies was a significant drop in crude oil prices to $106.29 compared to Friday’s nine-month high of $109.92.

The ICE dollar index which measures the dollar’s performance against a basket of six major currencies, traded at 78.22, down from 78.54 late Monday, indicating lower demand for the safe haven greenback.

The Canadian dollar reached its highest level in a week against its U.S. counterpart, gaining for a second day due to risk appetite. This pushed USDCAD to a low of 0.9948 in North American trading hours.

Among other major currencies, the British pound also gained on risk and also lifted by domestic data after the Confederation of British Industry said that UK retail sales rose to the highest in eight months. GBPUSD rose to 1.5899, close to a two-week high.

EURJPY traded sideways between 107.82 and 108.44 as did USDJPY, which was well supported above 80.33, while investors wait on the sidelines ahead of the ECB LTRO.