EUR/USD

The Euro was contained within a relatively narrow range during Monday as opposing forces were able to achieve a more balanced market position. There was Euro support below 1.3580 against the US currency while it failed to push above 1.3650.

The Euro continued to be unsettled by a lack of confidence surrounding the Greek debt situation and uncertainty over the medium-term implications for the Euro-zone economy and the Euro. EU officials denied that there was a bailout for Greece which tended to undermine sentiment to some extent, although the impact was measured given the amount of bad news priced in.

A lack of confidence is still very important in curbing the potential for Euro gains. The Euro would also tend to react negatively if there is a weaker than expected German IFO business confidence report later on Tuesday.

The other main focus in the market remains the outlook for US interest rates. There was no significant economic data to guide markets and the focus was, therefore, on comments from Federal Reserve officials. Regional Fed President Yellen stated that the economy still needed low interest rates and these remarks continued to dampen expectations of higher interest rates which sapped dollar support. The dollar consolidated near 1.36 in Asia on Tuesday with reports of sovereign interest on both sides of the market helping to curb ranges.

Source: VantagePoint Intermarket Analysis Software

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Yen

The dollar was unable to push above the 92 area against the Japanese yen during Monday and was subjected to significant selling pressure during the US session. Selling in light trading conditions, allied with a reduction in long positions following the failure to break resistance, managed to trigger stop-loss selling and the dollar dipped to lows near 91.10.

The yen was also boosted by some renewed buying support against the Euro as the yen found support close to the 125 area.

There were reports of several mutual funds being launched this week which would tend to push funds out of Japan and this dampened yen support, but the dollar was unable to regain ground as it remained hampered by a decline in Treasury yield support following the dip in US interest rate expectations.

Sterling

Sterling found support near 1.5450 against the dollar during Monday, but was unable to make much headway above the 1.55 level while the Euro consolidated close to the 0.88 region against the UK currency.

Underlying confidence in the UK economy and currency remain weak as economic and political stresses remain key factors. The latest opinion polls continue to highlight the risk of an indecisive result in the probable May general election and this is adding to market unease over the 2010 fiscal outlook.

Markets will look at Bank of England commentary on the inflation report very closely later on Tuesday and the remarks are liable to trigger further Sterling volatility. The UK currency could gain some respite from selling pressure if there are more upbeat comments on the economy, but underlying sentiment is liable to remain weak, especially with fears that the true government debt position could be even worse than reported.

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Swiss franc

The dollar generally traded in a relatively narrow range around the 1.0750 region during Monday. The dollar was unable to make any significant attempt at overcoming resistance towards the 1.08 area, hampered in part by persistent franc support on the crosses. The Euro trended weaker during the session and dipped to test support levels close to 1.4620 against the franc.

The franc is continuing to gain underlying support from a lack of confidence in the Euro and reduced speculation over an increase in US interest rates is also tending to dampen any pressure for a move out of the franc. Volatility is liable to spike higher given the increased threat of National Bank intervention near current levels against the Euro.

Australian dollar

The Australian dollar hit resistance above 0.90 against the US dollar during Monday, but selling pressure was quickly contained by underlying confidence in the currency with buying support below 0.8980 in relatively narrow ranges.

The Australian currency will find it more difficult to make further headway if there is a renewed deterioration in risk appetite and speculation over downward pressure on commodity prices, especially if there is further Chinese policy tightening.