by Darrell Jobman, Editor-in-Chief


The dollar consolidatedaround the 1.57 level in early Europe on Monday, but was unable to make any headway and dipped to lows near 1.5770 ahead of the US open.

The US currency was unsettled to some extent by comments from regional Fed President Stern who stated that the creditcrunch could last for the next few months. Fed Governor Mishkin concentrated on his preference for an inflationtarget rather than the level of interest rates, although he also stated that inflation was currently too high which should provide some dollar support.

The Eurowas, in turn, hampered by a further decline in consumer confidence to the lowest level for five years and there was also further evidence of a sharp deterioration in the Spanish housing sector.

There were, however reports that the Russian central bank had cuts its holdings of US mortgageagency bonds which reinforced market fears over the risk of asset diversification away from the US.

The evidence from equityflows, however, suggest that there have been net inflows into the US while the pace of outflows from the Euro-zone has accelerated. The Euro-zone will remain vulnerable to selling pressure on fears over the economic outlook.

The first regional data suggested that there will be a high reading for July German consumer priceswhich will keep the ECB on high alert over inflation.

The key short-term feature is likely to be a lack of confidence in both the US and Euro-zone outlook. These concerns will make it difficult for the markets to break currency ranges during the Summer period.

Source: VantagePoint Intermarket Analysis Software


Unless market fears over bankingand credit conditions increase intensify again, there will be persistent interest in selling any yen rallies. There will also be fears that higher inflation will undermine Japanese spending which will also tend to be a negative currency factor and the dollar pushed higher in Asia on Monday.

The latest IMM speculative positioning data recorded a sharp decline in long yen positions which will lessen the risk of heavy selling pressure on the currency. There will also be further exporter selling of dollars above the 108.0 level while global fears will still be an important factor in curtailing aggressive yen selling.

The US currency was unable to hold above the 108.0 level and retreated to 107.45 as there was wider selling pressure on the currency and an uneasy start on Wall Street.


Sterling dipped to lows near 0.7930 against the Euro in early Europe on Monday and also tested levels below 1.9850 against the dollar.

The latest Hometrack survey confirmed the recent evidence with a 1.2% fall in house pricesfor July to give a 4.4% annual decline and there will be further fears over the sector even though there is evidence that the level of mortgage ratesis easing slightly. Overall confidence in the UK economy will, therefore, remain very fragile in the short term.

There will still be some protection from evidence of sustained weakness in the Euro-zone as there should not be any major net capital flows out of the UK into Europe. In this context, Sterling recovered back to 0.79 against the Euro and 1.9950 against the dollar in US trading.

Swiss Franc

The Euro was unable to make any move above resistance levels around 1.63 against the franc on Monday and consolidated around 1.6275. The dollar was also unable to make any significant attack on the 1.04 level against the dollar and it retreated to 1.0330 on wider US currency losses as nerves over the US economy persisted.

The Swiss currency still struggled to gain any support from a slide in European stock marketsduring early trading on Monday which suggests that underlying demand for the currency is still relatively subdued with investorsstill targeting high-yield offshore currencies.

Source: VantagePoint Intermarket Analysis Software

Australian dollar

The Australian dollar was unsettled in early trading on Monday by substantial write-downs of over AUD800mn by ANZ Bankwhich reinforced the fears surrounding the sector following a similar move by NAB last week. The latest economic dataalso recorded a decline in business confidence.

The Australian currency dipped towards the 0.95 level before recovering back to 0.9550 in cautious markets. Overall confidence is liable to remain weaker in the short term and regional sentiment has deteriorated with the New Zealand dollaralso under some underlying pressure. There will still be buying support on dips given the still favourable yield considerations and wider US losses allowed an Australian dollar rally to 0.7575 in New York.