by Darrell Jobman, Editor-in-Chief


The dollar was unable to make a fresh challenge on Euro support levels below 1.4350 on Tuesday, but the US currency found support around 1.4430 as ranges generally narrowed for the day.

The US housing data remained weak at multi-year lows, although the market impact was limited. Housing starts fell to an annual rate of 1.19mn for November from a revised 1.23mn the previous month while permits fell by close to 2.0% to 1.15mn. There was a further significant decline in single-home building which will reinforce fears over an extended downturn for the sector.

The ECB sanctioned an additional and unlimited funding facility on Tuesday to ease the year-end liquidity fears. The bank allocated a huge US$501bn in a two-week funding operation at an average rate of 4.21%. The facility did succeed in lowering Euro market rates which will boost confidence that central bank actions are having some success. This could help underpin confidence in carry trades as well as boosting short-term ECB credibility.

Some of the funds could be switched into other currencies which will could have some negative impact on the Euro, especially as wider liquidity will run at reduced levels over the next few days. Institutions, however, will probably want to maintain Euro holdings ahead of the year-end which should provide some currency protection.

Source: VantagePoint Software, Market Technologies, LLC


The yen hit selling pressure stronger than 113.0 against the dollar on Tuesday, but found support near 113.50 as narrow ranges prevailed.

The yen’s vulnerability on yield grounds was offset in Asia by elevated levels of risk aversion as global equity markets continued to weaken. There was some revived interest in carry trades during the day which weakened the Japanese currency slightly, although the impact was measured as caution prevailed.

The adjustment of institutional holdings will remain very important over the next few days and this will maintain the threat of volatile trading. Any heavy liquidation of globalstock marketholdings would provide very significant yen support.


Sterling was unable to hold above 2.02 against the dollar on Tuesday with lows near 2.0110 while the UK currency also weakened to 0.7155 against the Euro.

UK consumer prices rose 0.3% in November with the annual rate unchanged at 2.1% compared with expectations of a 2.2% rate. The core inflation rate also moved lower to 1.4% from 1.5%, contrary to expectations of an increase to 1.6%. The Bank of Englandwill still be uneasy over inflation trends, especially as the RPI rate increased to 4.3% over the month and this rate has a significant impact on earnings trends.

Nevertheless, the drop in core CPI will reinforce expectations that the central bank will be able to cutinterest ratesagain early in 2008 which will tend to undermine Sterling.

The Bank of England minutes from December’s meeting will be watched closely on Wednesday for further evidence on likely trends. A narrow split would support the UK currency to some extent while a unanimous vote would tend to undermine the currency slightly as it would suggest less opposition to a further near-term rate cut.

Swiss franc

The franc was unable to strengthen through 1.6550 against the Euro on Tuesday and drifted back towards 1.66 as stock markets rallied. The franc traded in narrow ranges against the dollar with the US currency unable to challenge resistance levels above 1.1550.

There was a reported slowdown in Swiss retail sales for October with a 2.2% annual increase from 7.1% previously, although the data remained firm in which should limit the impact.

Short-term Swiss franc moves will still tend to be dominated by levels of risk aversion and credit fears should still provide important support to the currency.


Source: VantagePoint Software, Market Technologies, LLC

Australian dollar

The Australian dollar found further support near 0.8550 against the US currency on Tuesday, but failed to hold above the 0.86 level. The Reserve Bank’s minutes from the December meeting suggested that the bank would have tightened monetary policy had there not been concern over the global credit crunch and this firm stance will provide underlying Australian dollar support.

Risk aversion is liable to remain at elevated levels in the short term which will tend to undermine the Australian currency and volatile trading will be an important threat as liquidity tightens. The Australian dollar will also be vulnerable on increased fears over the global growth trends, especially as there will be downward pressure on commodity prices.