EUR/USD
The Euro retreated in early Europe on Monday and dipped to re-test support below the 1.2180 level.
There were concerns following the German Constitutional Court announcement that an ESM ruling would be delayed by eight weeks until September 12th. Although markets are still expecting that the court will rule in the government’s favour, there was unease over delays in implementing the ESM, especially as this would prolong uncertainty surrounding the Spanish banking-sector bailout.
There was uncertainty surrounding the ECB calls for senior bondholders to participate in losses in future bailouts, especially as this has been rejected by European Finance Ministers. There was some speculation that this could lower bailout amounts and could ultimately ease bailout pressures.
The US retail sales data was weaker than expected with a headline 0.5% decline for June while underlying sales declined by 0.4% which was the third successive monthly fall. Weak reports for the second quarter will inevitably tend to undermine second-quarter growth estimates. The New York manufacturing data was slightly more optimistic with a gain to 7.4 from 2.3 previously.
The retail sales data was the main focus and increased speculation that the Federal Reserve would move close to sanctioning additional policy easing with Chairman Bernanke’s congressional testimony due on Tuesday. The dollar will gain fresh support if there are no hints over further action.
There was still important evidence of defensive demand for secure bonds during the day. Spanish and Italian yields rose during the European session while German bund yields, along with UK, US and Canadian benchmark yields, stayed close to record lows. There were also negative rates at the latest Dutch bill auction.
Despite these stresses, the Euro found support below 1.2175 against the dollar and pushed to intra-day highs just above 1.23 in Asia on Tuesday with markets anticipating a more dovish tone from Bernanke.
Source: VantagePoint Intermarket Analysis Software
Call now and you will be provided with FREE recent forecasts
that are up to 86% accurate* 800-732-5407
If you would rather have the recent forecasts sent to you, please go here
Yen
The dollar was unable to make any headway against the yen on Monday as it retreated to test support in the 79 area. The dollar was undermined by the weaker than expected retail sales data with a direct negative impact on yields while there was also additional speculation over further Fed action to support the economy.
The yen also gained support on defensive grounds as funds continued to shun European peripheral bond markets. There were also further concerns surrounding the Asian outlook. There will, however, be competitiveness pressures if there is further weakness for the Chinese yuan.
Finance Minister Azumi warned that yen gains were not being driven by fundamentals and also stated that decisive steps would be taken if necessary. The dollar was unable to regain the 79 level against the yen on Tuesday.
Sterling
Sterling initially weakened in European trading on Monday, dipping to lows near 1.5515 against the dollar before regaining ground and eventually posting significant gains with a peak just above 1.5650. Sterling maintained a strong tone against the Euro with a fresh 44-month peak around 0.7830 before succumbing to profit taking.
There was further evidence of demand for UK bonds with benchmark yields close to 1.50%. The IMF cut UK growth forecasts in its latest report with the 2012 estimate cut to 0.2% from 0.8% with the 2013 estimate cut by the same margin to 1.4%. The IMF also raised its budget deficit forecasts as a function of weaker growth trends. The immediate market impact was limited, but fundamental concerns are likely to be an important medium-term feature. Sterling was still able to push to highs near 1.5675 as the dollar remained firmly on the defensive
Swiss franc
The dollar again hit tough resistance in the 0.9860 region against the franc on Monday and retreated to lows below 0.98 for the second successive session. There was no significant Euro move as it remained trapped close to 1.2010 with a brief drop to below the 1.20 level late in the US session.
There will be further initial demand for Swiss government bonds on defensive ground even though yields are already at extremely low levels. There is likely to be further speculation over a move to negative interest rates in Switzerland, especially after the ECB move to cut the deposit rate to zero.
Source: VantagePoint Intermarket Analysis Software
Call now and you will be provided with FREE recent forecasts
that are up to 86% accurate* 800-732-5407
If you would rather have the recent forecasts sent to you, please go here
Australian dollar
The Australian dollar found support ain the 1.02 region against the US dollar on Monday and climbed steadily during the New York session as it took advantage of a generally weaker US currency as well as a firmer tone in equity markets with a peak above 1.0250 during New York trading.
There were still important reservations surrounding the Chinese economy which curbed buying support to some extent. Risk maintained a firmer tone in Asia on Tuesday and the Reserve Bank minutes from July’s meeting also boosted the currency with the bank stating that firmer than expected demand had lessened the need for any further cut in interest rates.
