EUR/USD
The Euro tested support close to 1.3450 against the dollar on Thursday as underlying sentiment remained negative. There was firm support near this level and it recovered back to highs above the 1.3520 level later in the US session. There were again reports of Euro buying by central banks which provided important support for the currency. There was also some renewed evidence of short covering which helped underpin the Euro.
The US economic data was mixed with a slightly negative bias. There was a rise in durable goods orders for January which provided some scope for optimism over the industrial sector. In contrast, there was a significant increase in jobless claims to 496,000 in the latest week from a revised 474,000 previously. The data is inevitably erratic on a weekly basis, but the recent deterioration, allied with poor readings for consumer confidence, will increase unease over a potentially weaker labour market which would also undermine wider dollar confidence.
The comments from Fed Chairman Bernanke remained under close scrutiny during the day. In his second congressional appearance, it was comments on the US currency which were the main focus as Bernanke stated that public debt fears could hurt the dollar. These type of comments will always attract attention and have an important negative currency reaction with the dollar significantly weaker following the comments.
There is still very little confidence in the Euro-zone economy and Euro. There were fresh warnings on Thursday from credit-rating agencies Moody’s and Standard & Poor’s that Greece’s debt ratings faced further downgrades while there were further political stresses within Greece over the issue of budget cuts. The Euro was still able to maintain a firmer tone in Asian trading on Friday.
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Yen
The dollar dipped to lows below 89 against the yen during Thursday before recovering back above this level. The Japanese currency also strengthened to near 120 against the dollar before hitting resistance and retreating back towards 121 early in Asian trading on Friday.
There was evidence of an unwinding of carry trades during the day while there was also some cutting of short yen positions following the yen’s recent strength.
The yen will tend to gain some support on fears of sovereign defaults in other major countries, especially if fears over the global economic outlook increase. Potential yen support will still be limited by the fact that confidence in Japan’s economy will also remain weak, especially as government-debt stresses persist.
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Sterling
Sterling was subjected to sustained selling pressure on Thursday and weakened to fresh 9-month lows against the dollar with a trough near the 1.52 level. The UK currency also lost ground against the Euro with a decline to near the 0.89 level.
The latest investment data was weak with a further 5.8% contraction for the fourth quarter of 2009. Although based on different surveys, there was some unease that the data could signal a weaker than expected figure for revised fourth-quarter GDP data due on Friday.
There was stronger than expected figure for the latest CBI retail sales survey, but the potential positive impact was offset by persistent structural fears as confidence in the debt situation remained very weak. Bank of England MPC member Barker also warned that the UK economic recovery was not strong which reinforced negative market sentiment.
Sterling recovered from lows against the dollar as the US currency dipped significantly against European currencies, but it was trapped below the 1.53 level on Friday.
Swiss franc
The dollar was unable to sustain a position above 1.0850 against the franc on Thursday and weakened to lows near 1.0760 as European currencies attempted a recovery. The Euro was trapped within narrow ranges against the franc, unable to gain any significant support. The franc was constrained by speculation over National Bank intervention with the Euro close to levels where there was suspected bank action previously
The Swiss currency will continue to gain defensive support while credit-rating fears surround the Euro-zone, especially if there is evidence of stresses spreading to Spain.
Australian dollar
The Australian dollar continued to find support close to the 0.8850 level against the US currency during Thursday, but was unable to make much headway with rallies blocked below the 0.8950 level.
The currency was hampered by a decline in commodity prices and a general rise in risk aversion which curtained enthusiasm for the Australian currency and carry trades, both negative factors for the currency.
