by Darrell Jobman, Editor-in-Chief, TraderPlanet.com
Commentaryfor Tuesday, September 23, 2008
EUR/US$
The dollar found support weaker than the 1.48 level on Tuesday and recovered back to 1.47 in European trading as oil prices partially reversed Monday’s strong gains.
The PMI data for Europe was mixed, but with a weaker bias as the manufacturing index weakened to 45.3 in September from 47.6 the previous month. Although the services-sector data was slightly stronger than expected, the composite index fell to the lowest reading since 2001 which will maintain recession fears within the Euro-zone.
The Belgian business confidence index also dipped sharply which will maintain fears over the German IFO index which is due for release on Wednesday. The ECB has still maintained a tough public stance on inflation and monetary policy. A key issue for the ECB is that it is concerned over wage settlements with IG Metall continuing to push for an increase in the 7-8% range. Policy tensions are liable to build, however, with Finance Minister Solbes effectively calling for lower interest rates.
US Federal Reserve and Treasury testimony was an important focus on Tuesday as markets continued to fret over the proposed US bailout plans.
Fed Chairman Bernanke stated that the financial stresses are high and have intensified significantly. He also stated that congressional action is needed urgently to avoid very serious consequences and this will maintain market fears. Bernanke was also very critical over the regulatory conditions when he took office. Uncertainty over the plans will tend to unsettle the dollar, especially if congressional opposition builds and there are fears over delays.
There were no major US economic data releases with the Richmond Fed index weakening to -18 in September from -16 the previous month while there was a further decline in house prices for the month. The existing home sales data will be watched closely on Wednesday.
The dollar briefly strengthened to 1.4620 against the Euro before weakening back to around 1.47 with volatile conditions set to continue.
Yen
Markets will continue to monitor domestic political developments with speculation that Prime Minister-elect Aso could choose Nakagawa as Finance Minister, although global financial trends are likely to remain dominant yen influences at this stage.
Japanese markets were closed for a holiday with the dollar drifting towards 105 in Asian trading on Tuesday before rallying back to 105.80.
Equity markets were generally on the defensive during Tuesday, but the yen struggled to secure strong support. There was evidence of indecision and no clear trend with the Japanese currency settling around 105.45.
Sterling
Sterling pushed back above 1.86 against the dollar in European trading on Tuesday, but was again unable to sustain a move above this level. The UK currency secured some corrective advance against the Euro.
Fears over the housing sector will remain a key focus. UK mortgage approvals fell to 21,100 in August from a revised 22,200 the previous month. This was a record low as mortgage lending continued to fall sharply and will maintain fears over the UK housing sector.
There will be background fears that the UK will also need to provide additional support to the UK banking sector if financing strains fail to ease. Any confirmation of an EDF bid for British Energy would provide some support to the UK currency, but the retail sales trends will also be watched closely on Wednesday after an extremely weak survey last month and another large decline would increase pressure for lower interest rates.
Swiss Franc
The dollar found support on dips towards the 1.07 level on Tuesday before moving back above the 1.08 level. The Swiss currency drifted slightly weaker to 1.5920 against the Euro.
Underlying tensions in global equity and money markets persisted on Tuesday, but the Swiss currency was due for a corrective retreat following the rapid advance seen on Monday.
Underlying caution over risk appetite will be counteracted by unease over the Swiss banking sector which will tend to limit franc support.
Source: VantagePoint Intermarket Analysis Software
Australian dollar
The domestic considerations will remain of secondary importance in the short term, but some degree of unease over the economy will certainly persist given the fears over a tightening of credit conditions.
The Australian dollar should still gain some support from an easing of fear in the markets, although confidence will remain very fragile with the risk of erratic trading given that underlying tensions will persist. There will also still be reservations over regional carry trades which will limit domestic currency support.
The Australian dollar was unable to make a fresh challenge on levels above 0.85 against the US dollar and drifted back to below 0.84 as commoditypricescame under pressure.
