US Dollar - History is prone to repeating itself, but it failed to do so this morning when the US dollar continued its slide against the majors. We had revisited 2004 in Friday's Daily Fundamentals and pointed out that a similar Thanksgiving rally in the Euro consolidated on the Monday following the holiday. However the weakness in the US dollar was so dominant this time around that the Euro hit yet another year to date high this morning. There was no data released today, but there are a tremendous amount of event risk tomorrow including a speech by Bernanke and Moskow along with durable goods, consumer confidence and existing home sales. Tomorrow's data has a greater chance of coming out stronger than weaker. Even though durable goods is predicted to drop by 4 percent, the ex transportation component is predicted to rise. Consumer confidence should have also held on as suggested by the strength of retail sales over the Thanksgiving weekend. Aggressive spending is usually characteristic of happy consumers and given that the bulk of sales was concentrated in the big ticket items such as electronics, there is no way that consumers could be shelling out the big bucks if they felt uncertain about their finances. Furthermore, the UBS-Gallup poll which we can use as a leading indicator for Consumer Confidence even though it is delayed by a month confirms the possibility of a strong reading. The Gallup index jumped from 79 to 93 in October, reaching the highest level since 2004. Consumer confidence actually fell during that time, which means we may see a 'catch-up' in tomorrow's report. As for Fed comments, the strength of consumer spending as well as the recent weakness in the US dollar could keep a hawkish bent to the Chairman's words. A weaker dollar generally boosts inflationary pressures and given that inflation is the central bank's number one concern at the moment, it is unlikely that they will probably want to talk the US dollar down even further. Moskow will also be speaking and he is usually a very aggressive hawk who tends to favor tighter monetary policy. Therefore a bounce is very possible tomorrow even though from a longer term perspective, the factors that have pressured the US dollar lower are still here to stay.

Euro and Swiss Franc - The Europeans are beginning to become worried about the value of the Euro, but we want to point out that politicians are always the first ones to cry rather than monetary policy officials because they know that their popularity is contingent upon economic growth. This morning, the French Finance Minister said that 'vigilance' may be required if the dollar falls further against the Euro. He is one of the first to express frustration about the Euro's strength but unfortunately more of his peers have downplayed the significance of the currency's recent strength. Last Friday, German exporters said that they were not concerned about the Euro's rise and in fact have expected it. This morning, EU head Junker added his two cents by saying that the Euro is 'lengths away' from a critical level that would have a significantly negative impact on growth. As we mentioned last week, we suspect this level to be far closer to 1.34 and 1.35 than 1.31. The European Central bank is meeting to discuss monetary policy next week and the value of the Euro will certainly play a major role in their discussions. ECB officials have stood firm behind their plans to raise interest rates next month but have given little guidance on what may be to come afterwards. It will all depend on data and corporate profitability. Unfortunately if the Euro remains at its present level, both data and corporate profitability will begin to suffer. If you recall, companies like BMW and Volkswagen suffered greatly from being under hedged when the Euro soared from 1.26 to 1.36 in a matter of two months. Meanwhile after seven straight days of gains against the Euro, the Swiss franc finally retraced ahead of tomorrow's UBS consumption indicator for the month of October. The index is expected to be firm, but the drop in retail sales growth reported last week suggests that weakness is still a possibility.

British Pound - The British pound has rallied against the US dollar for seven straight trading days to the highest level in close to two years. A solid report on house prices released by Hometrack, more talk of merger related flow and optimistic comments from UK Chancellor Brown has all contributed to pound's impressive rise. The housing market has long been one of the strongest aspects of the UK economy and continues to fuel the country's consumer spending as well as overall economic growth. The demand by foreign corporations for UK corporations is also adding to the rise in the pound but the comments from UK Chancellor Brown was probably what took the currency over the edge. Brown said that growth will probably beat the Treasury's forecast this year and hinted that their 2006 pre-budget report on December 6th will most likely include upgrades to their GDP forecasts.

Japanese Yen - After four straight days of gains, the Japanese Yen slipped today as Bank of Japan Governor Fukui gave the market little confidence that he will match his words with action. Although he repeated his now familiar message that rates will need to be raised eventually, his credibility has gone down the tube, especially given the recent strength in the Japanese Yen which automatically tightens up the economy. The comment from the Deputy Governor of the People's Bank of China today is a perfect reflection of how other central bankers will soon feel. He said that holders of US dollars should become increasingly worried about their positions as they face the prospects of falling long term rates and a declining US dollar. The erosion of the US dollar's value will wake many central bankers up as they weigh return on yield versus an erosion of the face value of their investments.

Commodity Currencies (CAD, AUD, NZD) - The Australian and Canadian dollars are both stronger today thanks to firmer commodity prices. There was no data released from either country which suggests that they are simply benefiting from further US dollar weakness and firmer oil and gold prices. The New Zealand dollar on the other hand is weaker despite stronger business confidence. In fact, the index hit an 18 month high which is quite surprising given the strength of the currency and weakening of the economy.