by Darrell Jobman, Editor-in-Chief TraderPlanet.com
Commentaryfor Friday, August 15, 2008
The dollar pushed to highs near 1.47 againstthe Euroin early Europe on Friday and remained firm throughout the session. The US currency secured renewed support from a decline in oil pricesto fresh 3-month lows while gold also fell sharply over the day.
The USeconomic datareleases failed to have a major impact, but did have a slightly firmer tone which provided some degree of dollar support.
The New York manufacturing index rose to +2.8 for August from -4.9 the previous month while there was a 0.2% increase in industrial production following a 0.4% increase the previous month. There will be particular relief over the increase in manufacturing output, although there will be doubts whether this will be sustainable given the decline in auto sales.
Elsewhere, the University of Michigan consumer confidence for August was little changed at 61.7 from a final 61.2 in July while one-year inflationexpectations fell to below 5.0%. Dollar confidence was dented slightly by cautious remarks from regional Fed President Lockhart.
Underlying Euro-zone sentiment remained weak and the German ZEW data will be watched closely on Tuesday for further evidence on the severity of the current downturn. The dollar held firm close to six-month highs around 1.4680 later in US trading.
The latest Japanese data recorded a further slide in the monthly Tankan index of business confidence with a decline to -16 for July from -10 the previous month. The weakness will reinforce fears that the Japanese economy is in recessionand there will also be fears over the Asian economy as a whole given a sharp slowdown in export growth.
These economic fears will hamper the yen, but there will also be fears over a further unwinding of carry trade positions which would tend to strengthen the yen, possibly sharply.
Overall fears over Japan, allied with a strong US dollar, proved the greater force and pushed the yen weaker in Asia with a renewed challenge on the 110.30 yen support level. The US currency retained a firmer tone later on Friday, but struggled to hold above the 110.50 level while the yen settled near 162.0 against the Euro.
The UK currency tested support close to 1.85 against the dollar on Friday, but found support close to this level and corrected higher to 1.8630 while Sterling also regained some ground against the Euro with an advance to 0.7875.
Sterling has weakened for 11 successive days against the dollar and is therefore due for a technical correction stronger even though underlying confidence remains weak.
The latest data recorded a 24% annual increase in housing repossessions which will maintain fears over the housing sector, although the immediate impact will be limited as a substantial deterioration has been priced in.
The bank of Englandwill again be an important focus next week. Minutes from August’s MPC meting are due on Wednesday and these will be important for interest rateexpectations. Markets will also stay on high alert for comments from bankofficials following the shift in interest rate expectations.
The dollar attacked 1.10 against the franc on Friday and pushed to a fresh 6-month high, but was unable to strengthen through this level and retreated to 1.0960 in New York.
The franc’s resilience against the dollar also helped underpin it against the Euro and it strengthened to 1.61 during the day, the strongest level during August.
The retail sales evidence will be watched closely on Monday for further evidence on economic trends and a robust report would underpin the franc, although the data is volatile on a monthly view.
The Australian dollar was unable to strengthen above the 0.88 level against the US dollarover the past 24 hours and dipped to a fresh 7-month low near 0.86. The Australian currency was undermined by renewed downward pressure on commodity pricesas gold, for example, pushed below the US$800 per ounce level for the first time in 2008.
Underlying confidence in the Australian economy also remains weaker. The outlook for carry trades will remain an important focus with markets fearing a reduction in speculative positions funded through the yen. The currencyconsolidated around 0.8670 in New York as commodity prices attempted to rally.