by Darrell Jobman, Editor-in-Chief TraderPlanet.com
EUR/US$
The dollar weakened to lows just beyond 1.5750 in European trading on Friday before finding renewed buying support. The US currency was underpinned to some extent by a decline in oil prices over the day, although the impact was limited.
The US data releases were consistently stronger than expected which also provided some degree of support to the US currency.
Durable goods orders rose 0.8% in June while there was a 2.0% underlying increase for the month compared with expectations of a small decline. The data was boosted by robust defence buying, but will still provide some confidence in the underlying conditions.
The revised University of Michigan consumer confidence index rose to 61.2 from a provisional 56.4 while the annual rate of new home sales was 530,000 in June from an upwardly-revised 533,000 the previous month. Both figures were above expectations while there was a decline in inventories and prices edged higher. The data should ease immediate fears over a further deterioration in conditions, although confidence will remain very fragile.
Overall confidence in the Euro-zone economy also remained weak. The Euro drew some initial support from robust comments by the ECB’s Liebscher as he stated that the ECB still had room for manoeuvre on interest rates and could consider further tightening.
Fears over the economy limited any beneficial impact following weak data releases the previous day. The dollar consolidatedclose to 1.57 with Euro buying support on dips towards 1.5650.
Yen
Japanese underlying consumer inflation data recorded a further increase to an annual rate of 1.9% in June from 1.5% which represented a fresh 10-year high as gasoline prices continued to rise strongly. The impact should still be measured with markets not expecting the Bankof Japan to respond with higher interest rates.
Equity markets were back on the defensive on Friday following Wall Street losses while sharply increased bad-debt provisions by National Australia Bank also unsettled regional markets. These fears provided more significant yen support with the currency pushing to 106.60 against the dollar while the yen strengthened against the Euro.
There was again evidence of heavy yen selling on rallies and the Japanese currencyweakened back to 107.90 following the stronger than expected US data and an early rally on Wall Street. Unless market fears increase, there will be persistent interest in selling into yen gains.
Sterling
Sterling weakened to lows near 0.7920 against the Euro on Friday before finding support. Unease over the Euro-zone economy continued to provide net support to the UK currency.
UK GDP growth slowed to a provisional 0.2% in the second quarter from 0.3% previously while the annual growth rate slowed to 1.6% which was the slowest annual rate since 1993. The data maintained the evidence of a sharp downturn as housing-sector weakness was an important negative influence.
There may be some relief that the performance was not even worse, but overall confidence in the economy will remain weak.
There was tough selling pressure towards the 2.00 level against the dollar with consolidation around the 1.99 level.
Swiss Franc
The franc advanced to 1.6220 against the Euro on Friday as European equity markets came under selling pressure, but it was unable to sustain the gains and weakened back to 1.63 in New York as risk appetite recovered again.
After a retreat to 1.0315, the US currency also launched a further attack on franc support close to 1.04. The franc again found support close to this level and edged stronger to 1.0370.
The near-term franc moves will tend to remain dominated by levels of risk aversion in the short term with overall interest in carry trades limiting the scope for franc gains.
Source: VantagePoint Intermarket Analysis Software
Australian dollar
The Australian dollar was undermined on Friday by sharply higher bad-debt provisions at National Australia Bank which increased fears over more substantial damage to the financial sector and the wider Australian economy.
There was also a renewed decline in risk appetite, but the impact was offset to some extent by a partial recovery in commodity prices. The currency pushed back towards the 0.96 level in early Europe on Friday as the US currency drifted weaker, but it was unable to sustain the advance and drifted weaker in New York. There is still likely to be significant Australian dollar buying support on any dips as yield investing remains a key feature.
