Sign inDarrell's Commentaries
Daily Currency Analysis
EUR/US$
The Euro was unable to push back above the 1.42 level on Wednesday and weakened steadily during the day on a series of unfavourable developments.
The currency was undermined initially by a spike in risk aversion as the Shanghai equity markets declined sharply by over 5%. Commodity prices wee also sharply weaker during the day which was a negative influence.
The Euro-zone data was weaker than expected with a provisional 0.1% drop in German consumer prices for July to give an annual 0.6% decline. The IFO institute also reported that lending was more restrictive during July which will maintain fears over a credit crunch in the economy.
The headline US durable goods orders data was weaker than expected with a 2.5% decline for June, although the underlying data was firmer which should not have a major impact.
The Fed’s Beige Bok reported that the downturn was easing in most districts and was slightly more optimistic than the previous report. There were, however, still very important areas of weakness in the report with labour markets being reported as being very soft while there was also a deterioration in the commercial property sector. Bank lending also declined in most categories which will maintain speculation that any recovery in the economy will stall very quickly.
The jobless claims data on Thursday and GDP data on Friday will be important in determining near-term sentiment with increased defensive dollar demand if there are weak releases. The Euro dipped to lows near 1.40 in US trading before a slight corrective recovery.
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Yen
The latest Japanese retail sales data was weaker than expected with a 3.0% decline in the year to June which will maintain unease over the domestic spending outlook. The Ministry of Finance still upgraded its assessment of the economy in the latest report as the global industrial downturn eased
Risk conditions were weaker during Wednesday as caution prevailed although equity markets were generally resilient which lessened upward pressure on the Japanese currency.
There was the potential for month-end repatriation in to the Japanese currency and there was also speculation that there was a repatriation of funds as European bonds matured which provided some yen support.
Sterling
Sterling was unable to regain the 1.65 level against the dollar on Wednesday and dipped to lows around 1.6350 as the US currency secured wider support.
Global equity markets were still relatively firm during the European session with banking shares rising and this provided some degree of protection for the UK currency. It remains the case that Sterling will be much more vulnerable if there is a serious sell-off in equity markets.
The mortgage approvals data recorded a small increase for June which pushed the total to a 15-month high. The bank lending data was very weak with the increase in lending held to GBP0.4bn for June which was the lowest since the series was introduced in 1993.
The weakness in lending will maintain underlying fears over the economy and will tend to unsettle Sterling over the next few weeks. The UK currency was still resilient against the Euro with gains to 0.8575.
Swiss franc
The dollar found support below the 1.0750 level on Wednesday and strengthened to highs just above the 1.09 level in US trading. The franc was also weaker against the Euro even though the Euro was generally on the defensive with lows in the 1.5280 region
There was another warning over franc strength from National Bank member Jordan with comments that the bank would continue to intervention to push the currency weaker. The threat of intervention will remain a very important barrier to Swiss currency gains and certainly contributed to the weaker tone on Wednesday.
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Australian dollar
The Australian dollarhit a low near 0.8165 against the US dollar in Asia on Wednesday before rebounding to the 0.82 region. The currency was still securing some support from Reserve Bank comments the previous day, but this positive influence was offset by weaker risk appetite and lower commodity prices.
Australian corrections weaker should still attract buying support on dips, but there was a further decline to the 0.8130 region in US trading as commodity prices fell sharply with volatility set to remain higher in the near term.
Tags:forex, currency, australian-dollar, swiss-franc, sterling, yen, euro, u-s-dollar
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