by Darrell Jobman, Editor-in-Chief TraderPlanet.com
EUR/US$
The US currency edged stronger in Europeantrading on Wednesday, but was unable to sustain the gains and weakened to test levels beyond 1.5850 in US trading. The dollar was unsettled in part by weak data whilecommodity pricesremained generally strong.
The US ADP employment report was weaker than expected with a reported decline of 79,000 in private-sector jobs for June after a revised 25,000 increase for May. The data will increase fears over a further substantial employment decline in Thursday’s monthly payroll data, especially as the ADP data has generally been stronger than the official employment data over the past few months. Elsewhere, a 0.6% increase in factory orders did not have a significant impact.
There was a 1.2% increase in Euro-zone producer prices for June which was a 25-year high and will maintain price concerns.Inflation will inevitably be a key focus for the ECB at its policy meeting on Thursday, although the bank will also be wary ofcredit stresses.
The most likely outcome is that there will be an interest rate increase, although there is a small possibility that thebank will announce a 0.125% increase. There is also the possibility that there will not be a unanimous vote. TheEurowill tend to gain support if there is a rate increase and tough rhetoric from the bank while a decision not to increase rates would undermine the Euro sharply. The Euro will also weaken if the ECB takes a dovish stance in the press conference.
Official comments on the dollar will need to be watched very closely given speculation over a move to intervene to support the US currency.
Yen
The yen was unable to make any headway against the dollar in Asian trading on Wednesday and also retreated against the Euro.
Confidence in the Japanese economy will remain fragile with reports that thecentral bankis set to downgrade the economic outlook and there has been further evidence of retail yen selling which was running at the fastest pace for 11 months.
Confidence in theglobal economywill also remain very fragile which will curb yen selling pressure, illustrating the conflicting influences on the yen, which will maintain the risk of erratic trading.
The yen will gain some support if there is sustained downward pressure on asset prices, but rallies will continue to attract retail selling pressure.
Sterling
The UK currency was unable to make any fresh attack on 2.00 against the dollar in early Europe on Wednesday and was undermined by fears over the economic outlook.
The latest constructionPMI report recorded a further decline to 38.8 in June from 43.9 previously. This is the lowest reading for over 10 years and will increase fears over the economy, especially after the poor manufacturing survey reported on Tuesday.
There is also evidence of weaker retail sales with a sales warning from key retailers while there was also a warning from construction company Taylor-Wimpey. Sterling retreated to 0.7960 against the Euro following the data and struggled to regain any momentum against the dollar.
There will be unease over the services-sector PMI data due for release on Thursday as another figures substantially below the 50.0 level would reinforce negative sentiment towards the economy.
Swiss Franc
The dollar fluctuated around the 1.02 level against the franc on Wednesday while the franc found support close to 1.6150 against the Euro.
The latest inflation data will be watched closely on Thursday and a higher than expected reading would reinforce concerns over the inflation outlook. There would also be further speculation as to why the National Bank decided against increasinginterest ratesin June.
Source: VantagePoint Intermarket Analysis Software
Australian dollar
TheAustralian dollarfound support above the 0.95 level against the US currency in Asian trading on Wednesday.
The latest retail sales data was stronger than expected with a 0.7% monthly increase after a revised 0.1% decline the previous month. The strong data pushed the Australian currency back to the 0.96 region with momentum supported by the strength of commodity prices. There will still be some unease over the domestic economy, especially as there was a further sharp decline in building approvals.
Wider US currency weakness pushed the Australian dollar to highs of 0.9650 and choppy trading conditions are liable to persist on Thursday
