by Darrell Jobman, Editor-in-Chief, TraderPlanet.com
Commentaryfor Thursday, September 25, 2008
EUR/US$
The Euro pushed above the 1.47 level on Thursday, but was unable to sustain the gains and dipped back to consolidate near the 1.46 level in late European trading following a temporary dip to lows around 1.4560.
The US economic data releases on Thursday all had a negative tone which will maintain fears over economic trends. Durable goods orders fell 4.5% in August after a revised 0.8% increase previously while core orders also fell sharply for the month.
In addition, new jobless claims rose to 493,000 in the latest week from a revised 460,000 the previous week. Although claims may have been pushed up by the hurricane impact, underlying fears over the labour market will persist. In addition, new home sales dipped to an annual rate of 460,000 in August from a revised 520,000 the previous month. With inventories rising and prices falling, fears over the housing sector will continue.
Attention was still generally focussed on progress towards a US financial-sector rescue deal as congressional negotiations continued. Negotiators were inching towards an agreement ahead of the effective Friday deadline when the legislative session ends. There were media reports over a framework agreement, but no official announcement was made. Fears over underlying economic trends will tend to limit any dollar support if there is an agreement.
Underlying confidence in the Euro-zone economy is liable to weaken further in the near term with speculation that an interest rate cut will be brought forward and this should limit the scope for strong Euro gains with nervous market conditions set to continue.
Yen
Domestically, Japan reported a JPY324bn trade deficit for August compared with expectations of a small surplus. Exports were subdued while there was a strong increase in import values as commodity prices were high. The impact will be limited, but fears over the Japanese economy will persist with Bank of Japan officials also taking a downbeat tone over prospects.
Despite the huge US economic uncertainties, conditions within stock markets have been slightly calmer and this will limit immediate yen support, although the currency should have a relatively firm tone as fears surrounding stock markets could return rapidly.
An advance on Wall Street helped push the dollar to highs around the 107 level later in New York.
Sterling
Sterling pushed to a one-month high above 1.8650 against the dollar on Thursday, but then weakened steadily over the remainder of the day with lows near 1.83. The UK currency was also unable to make a fresh challenge on resistance levels below 0.79 against the Euro and dipped to 0.7970.
There were mixed remarks from MPC member Barker on Thursday. She remained concerned over the inflation outlook with some unease over wage settlements while she stated that it would be demanding to meet the 2.0% inflation target in two-years time. There was also greater concern over the economy given that the credit crunch had been worse than expected.
There will be further speculation that the Bank of England will move closer towards a near-term interest rate cut, although any negative Sterling impact may be lessened by the fact that there will also be speculation over a co-ordinated global approach to lowering rates.
Swiss Franc
The dollar found further support close to 1.08 against the franc on Thursday and challenged levels above 1.09 in New York. The franc was unable to break back below 1.59 against the Euro and settled back near 1.5940 region.
The Swiss currency will tend to lose support if the US authorities can secure a deal over a financial-sector rescue plan as risk appetite should improve, although the impact may be muted given that uncertainty over economic and financial trends will persist.
The latest KOF reading will be watched closely on Friday for further evidence on domestic economic trends and the impact of the wider slowdown in Europe.
Source: VantagePoint Intermarket Analysis Software
Australian dollar
The Australian dollar found support on dips towards the 0.83 level against the US currency on Thursday.
There was evidence of weaker domestic spending, but the Reserve Bank was confident that the economy could withstand the global stresses. Markets are likely to be less sanguine over the situation and there is likely to be pressure for a more aggressive policy of lower interest rates by the central bank.
The Australian dollar will gain support from US vulnerability, especially if there are strong gains for gold prices, but it was unable to make much headway and retreated in New York as the US currency recovered ground before settling around 0.8360.
