by Darrell Jobman, Editor-in-Chief TraderPlanet.com
The dollar weakened to lows just beyond the 1.59 level in European tradingon Monday before recovering back to around 1.5840.
The results from Bank of Americawere stronger than expected which provided some degree of support to the US currency, although the impact was less than that seen following the results last week. The US currency will gain some underlying support if there is an improvement in risk appetite.
Oil prices gained some support on fears over hurricane damage to oil installations and this was a negative factor for the US currency in cautious trading.
US leading indicators fell 0.1% for June after a revised 0.2% decline the previous month which will tend to reinforce a lack of confidence in economic trends as fears over trends continue.
There were no significant Euro-zone developments during the day, but there was a sense of apprehension ahead of the key events later this week with fears that there will be evidence of a further deterioration in the German economy. There will also be fears over a wider deterioration in the Euro-zone and the threat of diverge as the Spanish and Irish economies enter recession.
The dollar was unable to sustain gains and weakened back to 1.59 later in US trading. A key feature is likely to be a lack of confidence in all the major economies which may encourage range trading.
The dollar found support above 106.20 on Monday with Asian trading stifled by a market holiday. The latest speculative positioning data recorded a strong increase in long yen positions as risk fears increased and the Japanese currency will, therefore, be vulnerable to further selling pressure if market fears ease with a closing of speculative positions.
There will still be caution ahead of further US corporate results this week which will deter aggressive yen selling. The dollar was holding just below the 107.0 level in early Europe on Monday with any yen gains still being hampered by an underlying flows into high-yield currencies.
The dollar challenged resistance levels above the 107.10 level in US trading, but was unable to break above key levels and drifted weaker in New York as Wall Street lost early gains.
MPC member Blanchflower made a very negative assessment in comments over the weekend with a warning that the economy was probably already in recession. He also called for interest rates to be cut substantially from current levels to avoid an even deeper downturn. The latest housing data also remained weak with the Rightmove organisation reporting a 1.8% decline in house prices for July while there was a low response to the HBOS share offering.
The UK currency weakened towards the 1.99 level against the dollar following the comments while Sterling also lost ground against the Euro.
The latest retail sales data for London was strong as Sterling weakness attracted European buyers, but there will be severe apprehension over the latest national monthly sales data which is due for release on Thursday. There will be expectations of a sharp decline following the surprise jump last month and this will tend to limit Sterling support.
The UK currency was able to stabilise against the Euro and pushed back towards 2.00 against the dollar later in US trading.
The Swiss franc moves were still correlated strongly with moves in risk appetite and the currency gained support as Wall Street retreated from opening gains.
Producer prices rose 4.5% in the year to June which will maintain NationalBank unease, although a substantial impact is unlikely with the central bank unlikely to respond in the near term, especially given a weaker growth outlook.
The Australian currency held small gains in local trading on Monday. The increase in import prices was smaller than expected for the second quarter, but there was little market impact. The consumer prices data, due for release on Wednesday, will be much more important for interest rate expectations and the currency. A weaker than expected figure would trigger more substantial selling pressure on the currency.
The Australian dollar consolidated around 0.9750 in US trading. The currency is still drawing support from the overall flow of funds into high-yield currencies and the reopening of Japanese markets on Tuesday may be a positive factor.