by Darrell Jobman, Editor-in-Chief TraderPlanet.com
EUR/US$
The dollar weakened in early Europe on Thursday following the firmer than expected Euro-zone growth data. The US currency was also unsettled by a renewed increase in oil and commodity prices.
The US growth-orientated data was mixed, but the forward-looking data was marginally positive. Industrial production fell by 0.7% in April after a revised 0.2% increase the previous month and capacity use also declined. The New York manufacturing index edged lower to -3.2 in May from +0.6 the previous month, although this followed a strong rebound previously. Jobless claims were little changed at 371,000 in the latest week while the NAHB housing index remained weak.
The Philadelphia Fed index improved to -15.6 in May from -24.9 previously and there was a strong rebound in the six-month outlook for the second month running which will fuel expectations that the economy can rebound over the second half.
Long-term capital inflows to the US remained firm in March at US$80.4bn from US$63.6bn the previous month with firmer equity inflows, although overall flows were negative for the month on an outflow of shorter-term capital.
The Euro-zone growth data for the first quarter was stronger than expected with a 0.7% increase compared with expectations of a 0.5% increase as German GDP rose strongly. There was less confidence over the second-quarter prospects which tended to limit Euro support. Headline Euro-zone inflation was confirmed at 3.3% for April, but the core reading of 1.6% was sharply lower than the 2.0% expected which was also a negative Euro factor.
The ECB maintained a tough stance in public comments on Thursday, although there were still suggestions that some members were looking to take a slightly less restrictive stance. As oil prices fell, the dollar temporarily rallied to 1.5420 against the Euro before weakening again.
Yen
The Japanese economic data remained weak with core machinery orders falling by a further 8.3% in March to the lowest level for over three years. This data series is an important indicator of industrial strength and will therefore undermine confidence with the government also downgrading its assessment of the economy. In this environment, the dollar held comfortably above the 104.0 level against the yen.
There has been some underlying selling of Asian currencies which will offer some further near-term dollar support. The US currency was still struggling to overcome resistance and was holding below 105 in US trading on Thursday as it again hit selling pressure above 105.20.
Sterling
Sterling found support close to 0.7985 against the Euro on Thursday and edged cautiously stronger to 0.7940 in New York trade.
The UK currency was still gaining some support from stronger risk appetite during the day, although market uncertainty persisted as the renewed volatility in commodity prices was an unsettling influence.
After the heavy schedule of data releases and Bank of England commentary over the first half of the week, conditions were calmer on Thursday with no fresh incentives.
Overall confidence in the economy and currency remain very weak with increased fears that the economy will deteriorate even faster than expected, especially with the Bank of England looking to resist pressure to cut interest rates. The UK currency held above 1.94 against the dollar with Sterling securing some support from yield considerations.
Swiss Franc
The dollar found support below the 1.05 level on Thursday and advanced again to challenge tough resistance levels close to 1.06 in New York. The Euro hit resistance close to 1.6350 against the franc.
The latest consumer confidence index fell sharply to 2 from 14 previously which will reinforce fears over a Swiss slowdown and is likely to have some negative impact on the franc.
The Swiss currency was also hampered by a general improvement in risk appetite during the day as Wall Street pushed higher.
Source: VantagePoint Intermarket Analysis Software
Australian dollar
The Australian dollar dipped to lows below 0.93 against the US currency in local trading on Thursday before a rally to 0.9350. There were no major domestic influences, but underlying confidence towards the economy has weakened to some extent on doubts over the housing sector following a string of weaker data.
The Australian currency was unsettled by a drop in commodity prices while weakness in the New Zealand dollar also unsettled the Australian currency. Commodity prices made renewed progress during the day which provided support to the Australian currency in New York trading with a rebound to the 0.94 level against the US dollar.
