by Darrell Jobman, Editor-in-Chief TraderPlanet.com
Commentaryfor Monday, August 25, 2008
The dollar advanced to highs just beyond 1.47 against the Euroin early Europe on Monday, but struggled to sustain the gains. There was a small recovery in oil pricesduring the day which curbed immediate dollar demand. The existing build up of long speculative positions also made it difficult for the US currency to secure a fresh advance against major currencies.
US exiting home sales rose to an annual rateof 5.00mn in July from a revised 4.85mn the previous month and the small increase will maintain expectations that sales are bottoming out. Inventories, however, rose further to a record high while prices edged lower which will maintain underlying caution over the sector and a lack of confidence over trends.
The evidence on new home sales, together with the latest Case-Shiller data on prices, will be watched closely on Tuesday for further evidence on housing-sector trends.
Reportedly, the IMF has downgraded its 2008 forecastsfor Euro-zone growth to 1.4% from 1.8% previously and also cut its 2009 GDP growth forecast which will reinforce a lack of confidence in the Euro-zone economy.
The latest German IFO data will be watched closely on Tuesday as it is a key indicator of confidence and economic prospects. Markets are expecting a further modest decline from July’s level and, in this context, any increase would underpin the Euro. The Euro edged higher later on Monday as Wall Streetweakened, but hit selling pressure above 1.48 and settled close to 1.4750. Overall unease over the US and Euro-zone trends may lead to a period of short-term range trading.
The dollar again hit tough resistance above the 110.0 level on Monday and dipped to lows around 109.0 beforeconsolidating around 109.30.
Bank of Japan Governor Shirakawa stated that economic conditions remained sluggish, although this did not have a significant impact as markets have already come close to discounting a recession.
The Japanese currency was supported by renewed unease over the globalfinancial sector, especially with reports of opposition to any Korean investmentinto US bank Lehman Brothers.
There was also fresh speculation over an unwinding of carry trades and the Japanese currency strengthened to 161.30 against the Euro. Overall volatility levels are liable to remain higher in the short term as investorslook to sell the yen on rallies.
Sterling remained under pressure in Asian trading on Monday and weakened sharply in early Europe.
DeputyBank of EnglandGovernor Bean stated that the financial turmoil still had some way to run and was generally cautious over UK prospects, although he was more optimistic over longer-term prospects. Bean also expressed doubts over the global economy.
Markets used the speech to push Sterling lower and a break of 1.85 triggered heavy stop loss selling which pushed the UK currency to a fresh 2-year low near 1.84 against the dollar. Market moves were exacerbated by low liquidity with UK markets on holiday and Sterling pushed back above 1.85 in New York with the UK currency also recovering from lows just beyond 0.80 against the Euro.
The dollar was again unable to hold above the 1.10 level against the franc on Monday and weakened back to 1.0950 in US trading. The franc also advanced to 1.6170 against the Euro.
Financial stocksweakened on Monday with fears over further debtwrite-downs. This also increased speculation over a reduction in currency positions funded through the Swiss francand these concerns helped underpin the franc as Wall Street came under renewed selling pressure.
There will still be significant unease over the Swiss economic trends which will tend to limit franc support.
Source: VantagePoint Intermarket Analysis Software
The Australian dollarfound further support close to 0.86 against the US currency on Monday, but struggled to make more than limited headway.
The Australian currency was unsettled by a general increase infinancial-risk aversion and fears over further credit-related losses.
The Australian dollar struggled to gain much support from a rally in commodity pricesas global growth fears persisted. There has, however, been a further net reduction in long speculative positions which should stem selling pressure to some extent.