DJ Forex Focus

Both domestic and global developments are working against the euro this week.

The single currency is likely to continue suffering from a combination of disappointment that the U.S. and global recovery isn't proving more robust, as well as from rising evidence that euro-zone interest rates will have to stay lower for longer than previously thought.

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Sure, the victory for a new and stronger government coalition under Angela Merkel in Germany has lifted hopes for a robust fiscal expansion to help the euro zone out of recession.

But in the meantime, the list of reasons not to buy the euro is growing rapidly.

Start off with risk.

Strong third-quarter earnings may well have lifted global risk-aversion initially, and boosted equity markets worldwide. However, the mood has quickly turned sour.

Even though the flow of fairly positive earnings reports continues, investors are now more concerned that some countries, such as Australia, India and Norway, are starting to exit their emergency credit-crunch strategies at the same time that economic data from other quarters suggest that the global upturn may not be so robust after all.

Take U.S. consumer confidence figures that came out on Tuesday. Not only did confidence fall, instead of rising as expected, but the index constructed by the Conference Board tumbled far enough to cast doubt on how long it will take private consumption in the U.S. to recover.

The decline was enough to push back expectations of when the U.S. Federal Reserve will start raising interest rates, with ING Financial Markets analysts suggesting this won't happen until the third quarter of next year.

As market optimism over the recovery subsides, so does support for the euro, which remains a so-called high-yielder that gets help when times are good.

Hopes were dashed this week that the euro might gain if the euro zone itself started to pull out of recession sooner rather than later.

Not only are inflationary pressures within the region remaining low, but the latest measure of the euro zone's M3 broad money supply showed growth decelerating sharply to 1.6% in September from 2.5% in August. Private-sector loans fell 0.3% on the year, the first decline ever recorded.

This stark evidence that easier monetary conditions aren't being passed down to the consumer, and that credit-crunch conditions are still very much in force, means that the European Central Bank is unlikely to seriously consider tightening policy at this stage.

"The data supports the view that the ECB will remain in 'wait and see' mode and we continue to believe the bank will maintain the refi rate at 1% throughout 2010," said Mitul Kotecha, chief currency strategist with Calyon Credit Agricole in London.

So, wherever euro supporters look, either towards risk or rates, they are liable to be disappointed. Neither looks supportive of the single currency.

Early Thursday in Europe, the euro was mostly under pressure again, with investors seeking safe havens amid disappointing durable goods and new home sales data from the U.S. on Wednesday and concern that third-quarter GDP data later Thursday may not live up to expectations.

Global equities tumbled with the Nikkei falling 1.8% and the Shanghai Composite Index losing 2.3% in the wake of the 1.2% decline in the Dow Jones Industrial Average.

Third-quarter GDP is forecast to expand by 3.2% after contracting by 0.7% in the second quarter.

The euro initially fell as far as Y132.78 from Y133.55 late on Wednesday in New York but then rebounded to trade nearly flat at Y133.53, according to EBS.

It staged a similar bounce to $1.4740 from a low of $1.4683, taking it back over New York's late quote of $1.4705.

The dollar, meanwhile, fell to Y90.64 from Y90.82.

The price of crude oil on the New York Mercantile Exchange fell another 14 cents from New York's close to trade at $77.32 a barrel.