by Darrell Jobman, Editor-in-Chief TraderPlanet.com
EUR/US$
The dollar found support close to the 1.5750 level on Tuesday and gained sharply in US trading with initial support from a renewed decline in oil and commodity prices. The US currency also gained backing from a recovery in equity prices and fresh capital raising from Merrill Lynch. There was a peak close to 1.5550 in New York with a one-month high on a trade-weighted basis.
The US data continued the pattern seen at the end of last week with a slightly firmer than expected tone. Consumer confidence edged up to 51.9 in July from a revised 51.0 the previous month. Gloom persisted over current conditions, but there was a slight improvement in the expectations component.
The Case-Shiller house-price index was also slightly better than expected with a 15.8% drop in the year to May. There were sharp declines in several cities notably in California and Arizona, but 7 of the 20 cities recorded a monthly advance in prices which suggests that the difficulties are becoming more regional in nature. There will still be caution ahead of key economic data over the second half of this week
The provisional German consumer prices report recorded a 0.6% monthly increase for July which prevented a drop in the inflation rate from 3.3% and the data will keep the ECB on high alert. The Euro will still be hampered by fears over increased capital outflows and a sharp slowdown as French consumer confidence continued to deteriorate.
Yen
The US and global financial stresses remained an important feature as Asian share prices fell sharply on Tuesday. Confidence surrounding the financial sector was also initially undermined by Merrill Lynch’s announcement that it would take a further US$5.7bn debt write-down.
The dollar was slightly weaker at 107.40 with the yen securing some respite on the crosses as Asian equity markets fell.
The Japanese labour-market data was weaker than expected with a rise in unemployment to 4.1% from 4.0% while there was a 1.8% annual decline in household spending, although this was slightly better than expected. Weak confidence in the Japanese economy will maintain pressure for capital outflows.
Confidence surrounding global markets improved during the European session with the US currency pushing back to highs of 108.30, although the yen secured some further respite against the Euro.
Sterling
Sterling again found support weaker than the 0.79 level against the Euro during Tuesday and pushed to 0.7870. The UK currency was unable to hold above 1.9950 against the dollar and dipped sharply to lows below 1.98.
UK mortgageapprovals fell to 36,000 in June from 42,000 the previous month which wasa fresh record low while net lending data was weak and indicates very subdued consumer demand.
The latest CBI retail sales survey also recorded a net balance of -36 in July from -9 the previous month as companies recorded a decline in sales. This was the weakest survey for over 25 years and there was extreme weakness reported in sectors related to the housing sector. In this environment, there will be strong pressure for the Bank of England to cut interest ratesif inflation fears ease which will limit Sterling support.
Swiss Franc
The dollar found support close to the 1.03 level against the franc on Tuesday and, following a break above the 1.04 resistance area, peaked above 1.0450. The Swiss currency also weakened to test support levels near 1.63 against the Euro.
There was a firm reading for the latest UBS consumption index which provided some support to the Swiss currency on Tuesday, although the data may have been distorted by the World Cup.
The KOF leading indicator will be watched closely on Wednesday as this will give a more important picture of conditions within industry. A figure much below 1.00 would tend to undermine confidence in the economy and currency.
Source: VantagePoint Intermarket Analysis Software
Australian dollar
The Australian dollar resisted a further test of support close to the 0.95 level in local trading on Monday and edged stronger, although it was unable to regain the 0.96 level.
There were further concerns over the Asian financial sector and this will remain a negative factor for the currency, especially after the recent Australian bank debt provisions. In this environment, there will be caution over capital inflows with the currency struggling to find strong support.
Wider US currency gains pushed the Australian currency to lows of 0.95 in New York, but support close to this level again held.
