by Darrell Jobman, Editor-in-Chief TraderPlanet.com
EUR/US$
The Euro pushed above the 1.55 level against the dollar in early Europe on Wednesday, but was unable to sustain the advance and drifted weaker ahead of the New York open.
Oil and commodity pricesinitially rallied, but also failed to sustain the advance and tested new lows in US trading which also triggered fresh buying support for the US dollar. The US currency pushed just beyond the 1.54 level which was a fresh 7-week high for the dollar before consolidationaround 1.5415.
The latest Euro-zone data remained weak with a 2.9% monthly decline in German factory orders after a revised 1.4% fall the previous month to give an annual 6.1% drop. This was the weakest quarterly performance since 1992 while the Spanish industrial data also remained depressed.
Attention on Thursday will be clearly on the ECB policy decision even though a change in interest rates is unlikely. The press conference by the central bank will be very important for Euro sentiment.
The central bank will certainly remain concerned over inflation, but markets will be watching comments on growth and interest rate prospects very closely given criticism over the July interest rate increase. If the ECB signals increased fears over the growth outlook and makes any hint of a policy reversal then the Euro will be vulnerable to further heavy selling pressure.
Yen
Regional stock markets rallied again on Wednesday with the Nikkei index strengthening by around 2.0% and a sustained improvement in risk environment would tend to curb yen support. A decline in commodity prices will still be a net fundamental positive for the Japanese currency and exporter selling will tend to increase at current levels.
The dollar was unable to overcome resistance in early Europe on Wednesday and edged back to 108.30 as it suffered a wider corrective retreat.
The dollar gained fresh buying support in New York and strengthened to above the 109.0 level for the first time since January as Wall Street rallied. The break above technical resistance surrounding 108.60 is likely to trigger momentum yen selling.
Sterling
Consumer confidence dipped sharply to a fresh record low of 51 in July from 62 previously according to the latest Nationwide Bank survey while the NIESR estimated GDP growth in the three months to July of 0.1%. The data will certainly maintain fears over the UK economy, but should not intensify any near-term selling pressure given the degree of deterioration already priced in.
The IMF issued a generally downbeat assessment of the economy, cutting its GDP estimates for the next two years. It also stated that Sterling was likely to fall further, although it also commented that there was no near-term scope for lower interest rates. Fears over the economy will persist and there will be further pressure for government measures to support the housing sector.
Attention will focus on Thursday’s Bank of England interest rate decision with markets not expecting a change in rates. There will be some caution over Sterling selling ahead of the decision given the possibility of an increase in rates, although longer-term rate expectations are liable to be downgraded.
Sterling failed to sustain the recovery against the dollar and tested below levels 1.95 in New York. The UK currency will weaken very sharply if rates are cut on Thursday.
Swiss Franc
The dollar found support close to the 1.05 level against the franc on Wednesday and pushed higher again in New York trading with a peak above the 1.06 level. The franc also retreated back through 1.63 against the Euro with lows near 1.6350.
After a temporary rebound, commodity prices weakened again on Wednesday and this also curbed demand for the Swiss currency.
Risk appetite strengthened to the highest level of the year as stocksadvanced and this will also tend to curb near-term franc buying.
Source: VantagePoint Intermarket Analysis Software
Australian dollar
The Australian dollar found some support near 0.9150 against the US dollar in local trading on Wednesday as the currency attempted a weak corrective recovery.
The latest housing finance data was weak which will maintain fears over a sharp slowdown in the economy and this will tend to keep the local currency on the defensive with increased expectations of lower interest rates. In this context, the Australian currency dipped again later on Wednesday and dipped to fresh four-month lows below the 0.91 level against the dollar as long-term support levels were tested.
The latest labour-market data will be watched very closely on Thursday and any monthly decline in employment would further undermine confidence in the currency.
