The euro reversed course and appreciated vis-a-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4280 level and was supported around the $1.4170 level. Technically, today’s intraday low was just above the 23.6% retracement of the move from $1.3360 to $1.4395. The common currency recovered after yesterday’s sharp moves as global appetite for risk returned to the market. The recent sharp sell-off in global equity markets was broken today. Most traders believe the U.S. dollar’s short-term fortunes will be dictated the FOMC’s interest rate decision and statement on 31 August. Traders are also speculating as to how FOMC policy will materialize in December. An indication from the FOMC that it may continue to expand monetary policy could dent confidence in the U.S. dollar as yield differentials with other currencies would erode. Data released in the U.S. today saw Redbook U.S. retail sales off 0.2% m/m in the first two weeks of October. Chicago Fed’s Evans predicted the housing industry will recover in 2008. The Richmond Fed’s October manufacturing index worsened to -5 from +14 in September. In eurozone news, EMU-13 industrial orders were up 0.3% m/m in August, below expectations. ECB’s Weber again hawkishly reported “The inflationary risks have increased in the past weeks. If the inflationary pressure endangers price stability in the medium term, there is a need to take action in terms of monetary policy.” Euro bids are cited around the US$ 1.4045 level.

The yen weakened vis-a-vis the U.S. dollar today as the greenback tested offers around the 115.05 level and was supported around the 114.15 level. Technically, the pair continues to orbit the 114.75 level, representing the 61.8% retracement of the move from 109.00 to 124.15. The yen came off as appetite for global risk returned and risk aversion diminished. Some of the yen’s strength over the past couple of sessions has been attributable to the unwinding of short yen carry trades. Most traders believe the BoJ will not lift the overnight call rate again until 2008 from its current 0.5% level. The Nikkei 225 stock index climbed 0.07% to close at ?16,450.58. Dollar bids are cited around the 113.85/ 112.60 levels. The euro moved higher vis-a-vis the yen as the single currency tested offers around the ?163.95 level and was supported around the 162.05 level. The British pound and Swiss franc gained ground vis-a-vis the yen as the crosses tested offers around the 235.65 and ?98.10 levels, respectively. The Chinese yuan appreciated vis-a-vis the U.S. dollar as the greenback closed at CNY 7.5068 in the over-the-counter market, down from CNY 7.5086. PBOC reiterated it will continue with yuan reforms and make it convertible on China’s capital account. China announced it will delay the release of Q3 economic data until Thursday. U.S. Treasury chief Paulson called on China to implement a “fully market-determined currency in the medium-term.”

The British pound made sharp gains vis-a-vis the U.S. dollar today as cable tested offers around the US$ 2.0500 figure and was supported around the $2.0305 level. Cable retraced most of yesterday’s loss despite the release of a gloomy CBI October manufacturing survey that saw the balance of manufacturers who are optimistic about the year ahead decline to -13%, the lowest reading since January 2006. Bank of England MPC member Barker dovishly reported “The disruption in financial markets which started on August 9 has changed the balance of risks around UK economic activity towards the downside.” Most traders believe the MPC is in a wait-and-see mode on interest rates. Cable bids are cited around the US$ 2.0270 level. The euro came off vis-a-vis the British pound as the single currency tested bids around the 0.6945 level and was capped around the 0.6980 level.

The Swiss franc appreciated vis-a-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1700 figure and was capped around the CHF 1.1785 level. The pair continues to orbit the CHF 1.1745 level, representing the 23.6% retracement of the move from CHF 1.2215 to CHF 1.1600. Dollar offers are cited around the CHF 1.1835/ 1.1910 levels. The euro and British pound gained ground vis-a-vis the U.S. dollar today as the crosses tested offers around the CHF 1.6725 and CHF 2.4045 levels, respectively.

The Australian dollar appreciated vis-a-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.8970 level and was supported around the $0.8855 level. Australian dollar bids are cited around the US$ 0.8745 level. The New Zealand dollar gained ground vis-a-vis the U.S. dollar as the kiwi tested offers around the US$ 0.7570 level and was supported around the $0.7460 level.

The Canadian dollar appreciated vis-a-vis the U.S. dollar today as the greenback tested bids around the C$ 0.9620 level and was capped around the $0.9790 level. The pair established a new multi-decade low. Data released in Canada today saw August retail sales up 0.7% m/m with the ex-autos component up 0.3%. Bank of Canada Governor Dodge on Sunday reported the loonie’s appreciation has been “unusually quick” and doesn’t appear to be reflective of economic fundamentals. U.S. dollar offers are cited around the C$ 0.9860 level.