by Darrell Jobman, Editor-in-Chief TraderPlanet.com
EUR/US$
The Euro again tested 1.60 in early Europe on Wednesday, but was unable to make a fresh challenge on resistance above this level.
The Euro-zone data was mixed with a drop in the PMI index for the manufacturing sector offset by a recovery in the services data. Confidence indicators will be watched closely in the short term and the influential IFO report will be released on Thursday. The Belgian industrial confidence survey weakened sharply for April and this can be an important indication of the IFO survey. In contrast, the Euro-zone industrial orders data remained firm.
The data so far has not been weak enough to destabilise the Euro, but a weak IFO report would magnify the risks of a Euro reassessment. There were also mixed comments from European officials on Wednesday with Juncker again warning against excessive dollar weakness and official protests are liable to intensify.
After no significant US data releases during Wednesday, the latest batch of data will be watched closely on Thursday. The durable goods orders and new home sales releases will be important leading indicators as the economy is unlikely to make much headway unless there is evidence of a recovery in these sectors.
The Euro dipped to lows around 1.5860 against the dollar before pushing back to around 1.59 as there was still important buying on dips.
Yen
The dollar consolidated close to the 103.0 level in Asian trading on Wednesday with markets struggling for direction.
The Japanese trade surplus fell by 30% in the year to March to JPY1.12trn as high energy costs boosted imports while export growth was weaker. In particular, shipments to the US fell by the largest amount for over four years. The data may trigger some Finance Ministry reservations over yen gains, although the impact is likely to be limited.
Short-term Japanese currency moves will tend to remain dominated by levels of risk aversion with high oil prices a small net negative factor for the currency. The dollar advanced to 103.50 in US trade on Wednesday with some buying support as Wall Street moved higher.
Sterling
Sterling was again unable to sustain gains beyond the 0.80 level against the Euro on Wednesday and drifted back to 0.8030 despite wider profit taking on the Euro. The UK currency also again hit tough resistance close to 2.00 against the dollar.
The Bank of England minutes from April’s decision recorded that the MPC voted by a 6-2-1 decision to cut rates by 0.25%. Two members wanted no change in rates while Blanchflower voted for a bigger 0.50% rate cut.Besley and Sentance voted against the cut due to inflation fears and the weaker currency while output had not slowed as much as expected.
The two votes for no change will lessen expectations of further aggressive near-term rate cuts. In subsequent comments on Wednesday, Sentance took a generally moderate stance which suggests scope for another rate cut within the next 2-3 months.
The BBA mortgage approvals data was weak at a record low for March reflecting the fact that the banks limited activity due to funding difficulties. The data will reinforce fears over the housing sector, although total approvals will be more important as the banks will have lost market share to other lenders.
Swiss Franc
The dollar found support close to 1.0020 against the franc on Wednesday and rallied back to 1.0135 in New York trade. The franc also weakened to lows around 1.6140 against the Euro.
Equity markets were generally firmer over the day which curbed short-term demand for the Swiss currency, especially as credit spreads were generally narrower during the day.
The Euro is likely to find tough resistance on any approach to the 1.62 region against the franc which would be the strongest Euro level for 2008.
Source: VantagePoint Intermarket Analysis Software
Australian dollar
The Australian dollar held firm ahead of the consumer inflation data on Wednesday and pushed stronger following the data release. Consumer prices rose 1.3% for the first quarter while there was a 1.2% increase in core prices to give an annual increase of 4.1%. The higher than expected inflation data will revive expectations that the Reserve Bank could increase interest rates again.
The Australian currency will also gain support from the strength of commodity prices, but there will be a growing risk of a sharp correction weaker, especially as domestic risks are liable to increase. The Australian dollar drifted back towards the 0.95 level as the US currency rallied in New York.
