by Darrell Jobman, Editor-in-Chief TraderPlanet.com
EUR/US$
The dollar was unable to make a serious challenge on Euro support levels below 1.5550 on Monday and dipped to lows near 1.5630. The US currencysecured some renewed support in New York trading as commodity pricescame under strong selling pressure.Crude pricesbriefly dipped below US$120 per barrel which helped stabilise the dollar around 1.5580.
The latest speculative positioning data recorded an increase in long dollar positions which will make it more difficult for the US currency to gain fresh buying support.
As far as the economic datais concerned, the US core PCE inflationdeflator recorded a 0.3% increase for July after an upwardly-revised 0.2% rise previously and this pushed the annual increase to 2.5% compared with expectations of a 2.2% rate.
The PCE deflator is an important Fed inflation indicator with an unofficial target range of 1.0 – 2.0%. There will, therefore, be considerable unease that the core reading has pushed significantly above the 2.0% level and there will be increased pressure for the Fed to adopt a tougher policy stance on inflation.
Elsewhere, there was a larger than expected 1.7% increase in factory orders for June which will provide some reassurance over industrial trends. Assuming rates are left on hold, the FOMC statement will be watched very closely on Tuesday and the dollar will need a robust stance to make any strong headway.
The Euro-zone Sentix confidence index continued to weaken for July with a fresh decline to near record lows of -15.3 in July from -9.3 the previous month, reinforcing fears over the Euro-zone outlook. Markets will remain on high alert for any comments from ECB officials ahead of the Thursday council meeting with speculation over a weaker bank stance on growth.
Yen
The yen held little changed in Asian tradingon Monday with concerns over the global economy curbing selling pressure on the yen, especially with the Nikkei indexunder selling pressure due to economic fears.
There is still evidence of individual Japaneseinvestorspushing funds into high-yield currencies such as the New Zealand dollar despite these currencies weakening over the past few trading sessions. This flow of funds will continue to limit the scope for yen gains in the near term as technical levels above the 108.20 region remain an important market focus.
The US currency again challenged 108.30 in US trading on Monday as underlying yen selling persisted despite a weaker tone on Wall Street.
Sterling
The UK currency dipped in early Europe on Monday as renewed fears over the UK bankingsector undermined confidence.
The latest constructionPMI index dipped to a fresh record low of 36.7 in July from 38.8 the previous month which will maintain a severe lack of confidence in the construction sector after a rapid decline during 2008. Sterling weakened to lows around 0.7945 against the Euro and 1.96 against the dollar.
The Tuesday PMI services-sector data, allied with the latest industrial data, will be important indicators ahead of the Thursday Bank of England interest ratedecision. Depressed readings would heighten speculation over imminent recession.
The MPC will be very wary over surprising markets with a rate hike and may look to issue a subtle warning if there is serious discussion over a rate increase and any hints will be watched closely.
Swiss Franc
The dollar was again unable to hold above 1.05 against the franc on Monday and settled around 1.0480 in US trading. The franc also found support close to 1.6350 against the Euro during the day.
The Swiss PMI index was at 54.1 in July from 54.9 the previous month which was the lowest reading for three years, although this was slightly better than expected. Underlying concerns over the Swiss economy will continue with particular doubts over thefinancial sector.
Source: VantagePoint Intermarket Analysis Software
Australian dollar
The Australian dollar secured some respite in local trading on Monday ascommodity prices rebounded while there was a lower than expected 0.3% decline in house pricesfor the second quarter. There has also been further evidence of capital inflows from Japan, at least from individual accounts.
Overall confidence has weakened, however, and there will be further speculation that the Reserve Bank will switch to an easing balance this week or could even announce an interest rate cut on Tuesday which would trigger fresh and potentially heavy selling. A robust statement could trigger a rapid short-term recovery, but the tone will be more cautious as longer-termfunds reduce their holdings.
