EUR/USD
The Euro found support below 1.22 in European trading on Friday and pushed towards the 1.23 level ahead of the US payroll data. There was initial support from a lack of follow-through selling following the ECB meeting which triggered a closing of short positions.
There were rumours of an ECB meeting and also rumours that the Spanish government would announce a request for EFSF aid. There were no significant comments from Bundesbank officials during the day as market speculation over behind the scenes dissent continued. There were reports that the EFSF was looking to boost credit lines which suggested it was preparing for greater market intervention, increasing hopes for action to bring down peripheral yields and Spanish yields fell sharply during the day.
The latest US employment data was stronger than expected with a non-farm payroll increase of 163,000 for July following a revised 64,000 gain the previous month while the unemployment rate rose to 8.3% from 8.2% previously. The data provided some relief surrounding the economic outlook and there was also a recovery to 52.6 in the latest month from 52.0 previously.
Nevertheless, there were still expectations that the Federal Reserve could move to additional quantitative easing at the September meeting. The data also had a positive impact on risk appetite which curbed underlying dollar demand in choppy markets.
Spanish Prime Minister Rajoy maintained his commitment to austerity and also stated that no decision had been made on whether to apply for bailout funds. He stated that Spain would wait to assess the likely conditions that would be applied and it would also wait for ECB proposals. This could prove a dangerous strategy, especially as tensions could return rapidly as pressure on Rajoy intensifies.
Positioning also had an important impact later in US trading and after a brief decline to the 1.2225 support area, the Euro rallied strongly to a peak near 1.24 against the Euro. The currency broke above the 1.24 area in early Asian trading before a retreat back below this level.
Source: VantagePoint Intermarket Analysis Software
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Yen
The dollar consolidated in the 78.20 area against the yen ahead of the US payroll data. A stronger than expected relief provided significant US support as it pushed to a peak around 78.75. The US currency struggled to sustain support and edged back towards 78.40 later in the US session.
There was an improvement in risk appetite which helped curb defensive yen demand to some extent, especially with expectations of global measures to support demand. There was still an underlying mood of unease surrounding the global outlook which curbed aggressive yen selling. Monetary action by the Federal Reserve and ECB would also boost the yen’s relative appeal which would increase pressure for Bank of Japan action.
Sterling
Sterling found support close to 1.55 against the dollar during Friday and initially pushed to a peak around 1.56 before retreating following the US data. Wider US losses helped push Sterling back to highs around 1.5650 while there was a three-week low against the Euro.
The latest PMI services-sector index edged lower to 51.0 from 51.3 previously which maintained unease surrounding the economic outlook, but there was some relief that there was no decline to below the 50.0 level. There were negative reports surrounding the housing and retail sales outlook over the weekend which will increase unease over the outlook. There will still be expectations that the Bank of England will sanction additional monetary easing within the next few months and the inflation report will be watched very closely this Wednesday.
Swiss franc
The dollar was unable to re-test resistance levels above 0.9850 against the franc on Friday and retreated to test support levels just below 0.97 late in the US session. The Euro was able to make some progress towards the 1.2020 level as Euro selling pressure eased slightly.
There will be further expectations that the ECB will take aggressive action to underpin the Euro which should lessen pressure on the franc as capital inflows ease. Nevertheless, Swiss interest rates moved even more negative during the session which suggested underlying franc buying pressure had not eased and unease surrounding the situation will continue.
Source: VantagePoint Intermarket Analysis Software
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Australian dollar
The Australian dollar found support on dips to just below the 1.05 level against the US currency following the US payroll data on Friday and pushed to highs above 1.0550.
Risk appetite was stronger following the US release with some easing of recession fears, allied with expectations that central banks will take further action to support global demand. Domestically, there was a decline in ANZ job ads which did not have a significant impact, especially with expectations that the Reserve Bank would hold interest rates steady at Tuesday’s policy meeting.
