by Darrell Jobman, Editor-in-Chief

Commentaryfor Tuesday, August 26, 2008


The Eurohit selling pressure above 1.47 in early Europe on Tuesday and weakened further after the European data releases.

The German IFO index weakened to 94.8 in August from 97.5 in July which was worse than expected while there was a further decline in consumer confidence to a five-year low.

The data will maintain wider Euro-zone slowdown fears and reinforce speculation over an ECB shift within the next few months with markets pricing in rate cuts during 2009. This will tend to keep the Euro on the defensive and the currency dipped to lows below 1.4600 after the data.

The US data was mixed and did not have a decisive impact on the currency markets. Consumer confidence strengthened to 56.9 in August from 51.9 the previous month as optimism over future prospects improved. In contrast, new home sales were lower than expected at an annual rateof 515,000 in July from a downwardly-revised 503,000 the previous month while the Richmond Fed index was unchanged at -16 for August.

The Case-Shillerhouse-price index recorded a decline of 15.9% in the year to June from 15.8% previously. The regional diversity continued to intensify with much of the weakness concentrated in California. The data overall continues to indicate that the economy has basically stalled.

The FOMC minutes from July’s meeting stated that the next move ininterest rateswas likely to be higher, but the timing was uncertain. Comments surrounding the economy were generally gloomy and remarks on higher rates lacked conviction which limited dollar support. The US currencyconsolidated around 1.4650 later in New York trading.

Source: VantagePoint Intermarket Analysis Software


The dollar edged stronger to 109.70 against the yen on Tuesday while the yen retained a firmer tone against the Euro.There was a 1.3% annual increase in services-sector prices, while a senior LDP official stated that the Bank of Japan might have to consider an interest rate increase to boost investment income levels. There was still little impact from domestic factors with international trends still the dominanttrading influence.

There were further losses for high-yield currencies over the day and this provided background support to the yen on an unwinding of carry trades. The yen was unable to sustain brief gains through the 160 level against the Euro.


Sterling failed to hold above the 1.85 level in Asian trading on Tuesday and has remained under pressure during the past 24 hours. The trade-weighted index weakened to a fresh 12-year low while Sterling also dipped to a 2-year low near 1.8330 against the dollar.

The UK BBAmortgage approvalsdata recorded a figure of 22,400 for July which was unchanged from the upwardly-revised figure the previous month. Sentiment will remain very cautious and approvals have fallen by over 60% over the year.

There will be relief that a further deterioration was avoided, but overall confidence in the economy and currency will remain very weak for now. Fears over the Euro-zone and a lack of conviction over the dollar should still provide some degree of Sterling protection.

Swiss Franc

The dollar pushed to highs near 1.1090 against the franc on Tuesday but was unable to sustain the gains and weakened back towards 1.10 in US trading. The Swiss currency also strengthened to 1.6130 against the Euro over the day.

The franc gained some support from further unease over thefinancial sector as confidence remained generally weak

The latest UBS consumption index weakened sharply to 1.85 in July from 2.22 the previous month which will reinforce expectations of a sharp economic slowdown and is likely to stem franc support.

NationalBank Chairman Roth stated that second-half growth would be clearly weaker and that it would make no sense to tighten monetary policy in response to a temporaryinflation increase. Roth also stated that the Swiss economy was not suffering from a credit crunch, but unease will persist.

Source: VantagePoint Intermarket Analysis Software

Australian Dollar

The Australian dollar has continued to hit selling pressure on significant rallies. Global fears over the financial sector have tended to increase which has undermined Australian currency demand with a further reduction in carry trades.

The currency has also struggled to gain much support from a tentative rally in commodity prices. The Australian dollar retreated to below the 0.86 level againstthe US dollarin local trading on Tuesday and losses extended to 0.85 in Europe before a tentative correction. The 0.85 level is liable to be important for medium-term currency direction.