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Daily Currency Analysis
EUR/US$
The Euro remained strong in early Europe on Tuesday and pushed to test 2009 highs around the 1.43 level against the US currency.
US consumer confidence weakened slightly to 46.6 in July from 49.3 the previous month. This was the second successive decline as it was considered more difficult to find jobs over the month with this sub-index falling to the lowest level since 1983. The data impact will be measured, but will tend to increase unease over the economic outlook.
Elsewhere, the Richmond Fed composite index rose to 14 in July from 6 the previous month while the housing data was also positive with prices edging firmer in June according to the latest Case-Shiller index reading which should help stabilise confidence.
Regional Fed President Yellen was optimistic that there wee the first signs of a recovery from recession, but she was also very cautious over the commercial real-estate market and uncertainty will be a key feature.
Overall risk appetite was generally weaker during the day which made it more difficult for the Euro to advance while there was also speculation that Latvia had devalued its currency. In this environment, the dollar recovered from seven-week lows and the Euro weakened to test support levels below the 1.42 level.
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Yen
The Japanese currency consolidated just weaker than the 95 level in Asian trading on Tuesday as mixed pressures continued. Asian equity markets were unable to extend gains, but overall confidence was still firm with hawkish comments from the Australian central bank chief providing support to carry trades and undermining the yen.
There was, however, some degree of yen support from a repatriation of overseas assets before the end of the month with the Japanese currency still showing a degree of resilience given the benign global environment.
As risk conditions deteriorated during the day, the yen strengthened to highs near 94 against the dollar and also rallied to 133.0 against the Euro.
Sterling
Sterling maintained a firm tone in early Europe on Tuesday and challenged resistance levels near 1.6550 against the dollar.
The latest CBI retail sales survey recorded a figure of -15 compared with -17 the previous month. Although markets had expected a slightly larger improvement, the data suggests that consumer spending is still holding relatively firm. Overall confidence is still liable to be fragile given the massive debt burden.
The UK currency was again influenced strongly by degrees of risk appetite and a deterioration n sentiment triggered a weaker Sterling tone with a low below 1.64 against the dollar
Any increase in fears surrounding the banking sector, allied with increased unease over the government debt position, would be a potentially very toxic mix for the UK currency, illustrating the importance of near-term data releases.
Swiss franc
The dollar again found support close to 1.0650 against the franc on Tuesday and pushed to a high near 1.08 in New York before consolidating near 1.0750.
There was no evidence of intervention by the National Bank, but markets will be nervous over the threat on any further approach to the 1.06 region.
The UBS consumption index improved for June which will provide some degree of support to confidence over the economy, but the inter-play of global risk appetite and National Bank policies will tend to remain dominant currency influences for now.
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Australian dollar
The Australian dollar jumped higher in Asian trading on Tuesday with a move above the 0.8320 level. Reserve Bank Governor Stevens took a hawkish stance on monetary policy in a speech on Tuesday with comments that interest rates could be tightened before the unemployment rate had peaked and this put renewed upward pressure on the Australian dollar.
Confidence will remain generally firm initially, but risk appetite faded during the US session and the Australian dollar weakened back to the 0.8250 region. There will be a threat of increased volatility over the next few days as selling pressure will be met with strong buying support on dips.
Tags:forex, currency, australian-dollar, swiss-franc, sterling, yen, euro, u-s-dollar
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