by Darrell Jobman, Editor-in-Chief TraderPlanet.com
Commentaryfor Friday, August 8, 2008
EUR/US$
The Euro was subjected to further selling pressure in Asian tradingon Friday, failing to secure any significant correction after the sharp losses following the ECB meeting on Thursday. The US currency strengthened through the 1.52 level and pushed to near 1.51 ahead of the US open.
Confidence in the Euro-zone economy remains weaker following Thursday’s comments from ECB President Trichet that growth was weakening. ECB member Wellink maintained a generally downbeat down on Friday with comments that the economy was not performing well, although he also stated that the situation was not a disaster.
There has been an important shift in Euro sentiment with much greater concerns over Euro-zone growth trends while wider fears over the global economy have also protected the US currency. There was a reported 0.3% decline in Italian GDP for the second quarter which reinforced a lack of confidence towards the Euro-zone.
The US data recorded a 1.3% increase in labour costs for the second quarter compared with an expected 1.5% increase, but this did not have a significant impact as attention was focussed firmly on Europe. The US data will, however, be watched closely next week, especially the retail sales data.
Tensions in Georgia and unease over the wider Russian situation also undermined the Euro to some extent. Selling pressure continued in US trading with lows near 1.5050. This was a fresh 6-month low for the Euro while the US currency was set for the strongest weekly gain for over three years.
Yen
The trading pattern of yen firmness on the crosses persisted in Asia on Friday with the yen slightly weaker against the dollar at close to 109.60 while it tested levels below 167 against the Euro.
The domestic data recorded an increase in corporate failures which will reinforce fears over the economy. In contrast, there was a 2.0% increase in banklending over the year which was close to multi-year highs.
The evidence suggests that Japanese banks are not as vulnerable to credit restrictions as other global banks which should provide some degree of yen support as international fears increase. The focus on Europe will also provide some yen protection, although there will still be investment flows overseas on yield grounds.
The yen continued to test support levels near 110.0 against the dollar in Europe on Friday, but strengthened further against the Euro to near 165.50.
Sterling
The wider theme of an accelerating US currency recovery pushed Sterling sharply down against the dollar in Asian trading on Friday with a trough below the 1.93 level, the weakest level for 17 months. There was no relief later in the day with Sterling dipping to below 1.92. The UK currency pushed stronger to 0.7840 against the Euro as European currencies generally came under pressure.
Overall confidence in the UK economy will remain very weak in the short term as recession speculation continues. There will be further unease over the housing sector, especially as speculation that the government could announce measures to support the housing sector is causing uncertainty and further undermining activity.
The inflation evidence will be very important for Sterling sentiment net week with the latest producer prices data due out on Monday. Any slowdown in inflation would tend to weaken the currency sharply.
Swiss Franc
The franc remained firmly on the defensive against the dollar on Friday with fresh 7-month lows near the 1.08 level before a technical correction. The franc secured further respite against the euro and pushed to highs near 1.6220 as the Euro came under heavy selling pressure.
Seasonally-adjusted Swiss unemployment held at 2.5% in July which was still at a 6-year low which suggests that the labour market is holding firm at this stage. Overall confidence in the economy is still liable to weaken.
Source: VantagePoint Intermarket Analysis Software
Australian dollar
There were no significant domestic developments on Friday with markets focussed strongly on global trends. The combination of downward pressure on commodity prices and a renewed advance for the US dollarpushed the Australian dollar to a six-month low near the 0.89 level.
Sentiment will remain depressed in the short term, but there will be pressure for at least a limited corrective recovery after the very heavy losses seen over the past few days. Markets will monitor any comments from the Reserve Bank very closely next week with the monetary statement due out on Monday.
