by Darrell Jobman, Editor-in-Chief TraderPlanet.com
Commentaryfor Monday, August 18, 2008
EUR/US$
The dollar weakened to lows near 1.4770 against the Euro on Monday as there was strong pressure for a correction after recent strong gains. The Euro failed to sustain the gains, but did find some support below the 1.47 level.
The US currency was hampered by a rally in oil and gold prices over the day with gold pushing back above the US$800 per ounce level. The latest speculative positioning data continued to record dollar buying as previous short positions were reversed and the current market positioning will increase the risk of at least a temporary correction.
The Euro-zone trade account remained weaker for June with a EUR3.0bn shortfall for the month after a revised EUR1.0bn deficit previously. The data will reinforce fears that the Euro-zone economy will be seriously damaged by a combination of faltering demand and a loss of competitiveness. The German ZEW data will be watched closely on Tuesday and any deterioration would further undermine Euro confidence.
There were no major US data releases on Monday, although the NAHB house-price index remained at a record low of 16 for July. The housing and producer prices releases will be watched closely on Tuesday with a particular focus on the housing data. The dollar will be vulnerable to renewed selling pressure if there is a sharp deterioration.
Yen
The dollar edged lower to 110.10 against the yen on Monday as the US currency was subjected to a wider correction.
Domestically, markets are expecting the Bank of Japan to hold interest ratessteady on Tuesday. There are also strong expectations that the bank will downgrade its outlook for the economy in the latest monthly report which will reinforce a lack of confidence in the outlook.
There has been a rebound in commodity currencies since Friday and this will stem immediate pressure for a capitulation in carry trades in commodity currencies funded though the yen. There is, however, still a risk of underlying selling pressure due to a fundamental shift in asset allocations which should limit the risk of sharp yen losses.
The dollar drifted close to 110.0 later on Monday while the yen was able to strengthen through 162.0 against the Euro.
Sterling
The Rightmove house-price index recorded a further 2.3% decline in August for a 4.8% annual decline. The housing data and downbeat BCC survey will maintain fears over the economy as a whole, although the immediate impact will be limited as a substantial deterioration has been priced in.
The Bank of England will again be an important focus this week. Minutes from August’s MPC meeting are due on Wednesday and these will be important for interest rate expectations as underlying pressure for lower rates continues to increase.
Sterling edged stronger towards 1.87 against the dollar on Monday on a wider correction for the US currency, but was unable to sustain the advance and drifted back towards 1.8650 as underlying sentiment remained weak.
Swiss Franc
The dollar found support close to1.09 against the franc on Monday and pushed higher to make a fresh challenge on the 1.10 resistance level. The franc again resisted a push through this level and recovered back to 1.0960. The Euro found buying support below 1.61 against the Swiss currency.
The latest retail sales data recorded a 0.7% headline increase in sales in the year to July although, when adjusted for the number of shopping days in the month, there was a firmer 4.7% increase. The data will provide some degree of relief over the economy, although there is clear evidence of an underlying slowdown which should dampen expectations of higher interest rates.
Source: VantagePoint Intermarket Analysis Software
Australian dollar
The Australian dollar found further support close to the 0.86 level against the US dollar during Friday and pushed stronger in local tradingon Monday with a peak close to 0.8750.
There was scope for a significant correction following the heavy losses seen over the previous two weeks. Commodity pricesalso remained an important focus and there was a correction with gold and oil pricesboth rising over the day.
There will still be increased fears over the global economy which will curb underlying currency support and there will also be further pressure to cut carry trades. The Australian dollar retreated back to below 0.87 in US trading.
