by Darrell Jobman, Editor-in-Chief

Commentaryfor Tuesday, August 12, 2008


The dollar pushed to fresh 6-month highs against the Euro in early European tradingon Tuesday with a high close to 1.4815. The US currency was then vulnerable to profit taking after rapid gains and retreated towards 1.49.

The US trade deficit narrowed to US$56.8bn in June from a revised US$59.2bn the previous month. There was a firm 4.0% increase in exports which was the strongest monthly gain for over four years while there was a modest rise in imports. There will be some optimism that the underlying trade position is improving which will underpin the dollar and there will also be upward revisions to second-quarter GDP growth which will tend to reinforce positive sentiment.

The retail sales data will be watched closely on Wednesday as the consumer spending estimates will be important for underlying sentiment. In particular, dollar confidence would be seriously tested by any monthly sales decline.

ECB member and German Bundesbank chief Weber took a generally cautious approach on the economy, warning that German second-quarter GDP growth could be weaker than expected. The comments will maintain unease over the Euro-zone growth trends and the GDP data on Thursday will be very important for confidence.

Despite the trade data, a rally in commodity priceshelped push the dollar to lows around 1.4965, before a recovery to 1.4920 later in US trading.

Source: VantagePoint Intermarket Analysis Software


The Japanese currency retained a firm tone against the Euro in local trading on Tuesday while the US currency held above the 110.0 level.

The Japanese data recorded a 7.1% increase in wholesale prices in the year to July which was a 27-year high and will reinforce fears over the corporate profitability outlook. Consumer confidence also dipped to a fresh record low which will maintain the threat of recession, although yen moves will still tend to be dominated by global trends.

The further decline in metals prices and sell-off in high-yield currencies will maintain the threat of a reversal in carry trades which will underpin the yen, although trading conditions will remain volatile. The Japanese currency strengthened to 109.35 against the dollar in New York and also pushed to 163.05 against the Euro, the strongest yen level for over two months.


The UK RICS housing survey recorded a further decline in activity to record lows and prices while the BRC survey recorded a drop in retail sales which will reinforce the negative growth outlook. Sterling retreated to fresh 21-month lows below 1.90 in early Europe on Tuesday.

UK consumer inflationrose sharply to a headline rate of 4.4% from 3.8% the previous month as food and energy prices rose strongly while the core rate also rose to 1.9% from 1.6%. The Bank of England will certainly remain concerned over inflation, but markets are looking beyond the near-term data with a focus on growth and medium-term trends, especially as oil and commodity prices have fallen.

The UK currency struggled to gain any significant support from the data which suggests an important shift in sentiment towards the high-yield currencies. Markets are not convinced that the

Bank of England will be able to increase interest rateswhile confidence towards the UK has deteriorated further. In this context, Sterling weakened to 0.7865 against the Euro.

The bank’s quarterly inflation report will be watched very closely on Wednesday for further evidence on possible interest rate trends with a substantial Sterling reaction likely.

Swiss Franc

The dollar pushed to fresh 6-month highs against the Swiss franc during Tuesday, but was unable to sustain levels above 1.09 and retreated to 1.0870 later in US trading. The franc edged slightly weaker against the Euro to 1.6215.

The Swiss currency has struggled to make any headway in global currency marketsand underlying sentiment will remain fragile. The franc will still gain some support if there is a significant downturn in global stock markets.

Source: VantagePoint Intermarket Analysis Software

Australian dollar

The Australian dollar remained under pressure in local trading on Tuesday as sentiment remained at depressed levels. There were further concerns over the global economy which put downward pressure on commodities prices with speculation that demand would weaken.

Domestically, the latest NAB business survey continued to suggest an underlying deterioration in conditions which will reinforce expectations of lower interest rates. This combination will remain a threat to carry trades with some repatriation of funds back to Japan. The Australian dollar retreated to a low near 0.87 against the US currency before a tentative recovery. The Australian currency dipped back towards 0.8750 in US trading as metals struggled to sustain a rebound.