by Darrell Jobman, Editor-in-Chief TraderPlanet.com
The dollar traded just stronger than 1.57 in early Europe on Thursday ahead of key European data releases.
The German IFO survey weakened to 97.5 in July from 101.3 which was a three-year low and will reinforce fears over a sharp German slowdown. The Euro-zone PMI data was also weak with the indices well below the 50.0 level and the French data was notably depressed. The one area of support was a stronger than expected reading for the German services sector, but overall fears over the Euro-zone economy will increase.
The Euro-zone current account also continued to deteriorate for May with an adjusted EUR7.3bn deficit while there were further outflows of direct investment which indicates a weakening balance of payments position. The Euro dipped to lows around 1.5630 against the dollar following the European data.
US jobless claims increased to 406,000 in the latest week which will cause some unease over the labour-market trends, although the continuing claims data was more favourable which will limit the impact.
US existing home sales dipped to an annual rate of 4.93mn in June from 4.99mn the previous month. Inventories edged higher while prices were firmer over the month but registered an annual decline. Markets are unlikely to price in further Fed tightening at this stage which will limit any further support for the US currency and may prolong range trading.
The dollar found further support weaker than 1.57 in New York and consolidated near 1.5660 as oil and gold prices also consolidated after recent heavy losses.
The latest trade data recorded a sharp surplus decline of close to 90% in the year to June to JPY139bn as overall exports declined for the first time since 2003. The weak exports data will maintain fears over the economic growth trends and cause Finance Ministry unease. Bank of Japan member Mizuno stated on Thursday that downside economic risks were more important than the inflation risks.
In this environment, the central bank will not look to increase interest rateswhich will reinforce the lack the of yield support for the Japanese currency. There is the potential for further market interest in carry trades which will increase capital outflows.
The dollar pushed to highs of 108.0, but was dragged back in US trading by renewed weakness on Wall Street. The yen recovered to 107.30 and also moved away from record lows against the Euro with an advance back to 168.0.
Sterling drifted weaker in early Europe on Thursday with unease over the retail sales release.
The fears were justified as sales fell sharply in June with a 3.9% monthly decline after a revised 3.6% increase the previous month, the weakest monthly outcome for over 20 years. The annual increase was cut to 2.2% which was below the recent underlying trend and will reinforce expectations of a sharp underlying slowdown in spending.
A weak sales reading was expected which will limit the immediate impact, but underlying confidence in the economy is liable to weaken as the recent run of data has been uniformly depressed.
The UK currency will still gain some support from inward investment flows and fears over the European growth outlook. Sterling dipped to 0.7905 against the Euro before consolidatingaround 0.7890 while it also weakened to lows of 1.9820 against the dollar.
The Swiss franc found further support close to 1.63 against the Euro and 1.04 against the dollar. Wall Street weakened on Thursday which lessened immediate selling pressure on the franc which recovered to 1.6240 against the Euro.
The deteriorating trends within the Euro-zone will offer some support to the franc, but the impact will be lessened by fears that there will be a negative impact on Swiss exports. Overall investor enthusiasm towards Europe is also likely to be lower which will limit franc support.
Source: VantagePoint Intermarket Analysis Software
The Australian dollar has remained on the defensive against the US dollar over the past 24 hours with losses triggered by a decline in commodity prices and a firmer US currency. The New Zealand interest rate cut also had a small negative impact on the Australian dollar and it weakened to lows near 0.9535 during Thursday.
The currency will remain vulnerable toa further correction weaker if there is a sustained decline in commodity prices and copper prices dipped sharply for the second successive day on Thursday. Interest in carry trades should continue to provide some important degree of support for the Australian dollar.