by Darrell Jobman, Editor-in-Chief


After a weak performance on Friday, the US currency recorded sharp losses on Monday as support levels broke. The US currency weakened to a 7-week low against the Euro at around 1.3635 and was unable to secure a significant recovery.

The June US manufacturing ISM index strengthened to 56.0 from 55.0 in May, a fresh 12-month high for the index. Orders and production components were strong while the drop in inventories suggests that the index should remain firm in the short term. The inflation and employment components were slightly weaker which will curb optimism to some extent.

Nevertheless, the data was still sound and the dollar’s vulnerability in the face of firm data will weaken sentiment, especially as yield spreads did not move against the currency. The dollar will need to recapture the 1.3550 level quickly to secure an improvement in confidence.

The latest IMM data recorded a renewed increase in long Euro positions and this will increase the risk of a Euro correction weaker, although underlying confidence in the Euro will remain strong in the short term. The June Euro-zone manufacturing PMI index was revised up to 55.6 from 55.4 which will maintain optimism over the near-term economic trends.

Source: VantagePoint Software, Market Technologies, LLC


The yen found support weaker than the 123.0 level against the dollar on Monday and strengthened to 122.30, although this was primarily a function of dollar weakness.

The headline Tankan index was unchanged at +23 in the June quarter and the underlying readings were little changed. The firm pricing data within the data will help reinforce expectations of an August Bank of Japan interest rate increase, but not increase speculation over a more aggressive central bank stance.

As global credit conditions gradually tighten, the aggressive carry trade positions will tend to be squeezed out of the market, increasing the threat of a more substantial yen correction stronger. Markets will also remain on alert for comments from Japanese officials given the potential for more concerted protests against excessive yen speculation.

The latest IMM data recorded a further increase in short yen positions to a record level close to 190,000 contracts. This extreme positioning will increase the potential for a sharp yen correction stronger.


Sterling was able to resist any significant losses against the dollar in early Europe on Monday and strengthened to fresh 26-year high against the US currency with a peak close to 2.0175. The UK currency weakened to 0.6755 against the Euro.

The CIPS index for the manufacturing sector fell to 54.3 from 54.9 in May, while the prices indicators were still firm. Services-sector growth was strong at 1.0% in the three months to April, although this masked the fact that was a monthly contraction in April. The savings ratio drop suggests that consumer spending will come under downward pressure this quarter which will slow the economy as a whole.

Markets are focussing very strongly on the potential for a Bank of England interest rate increase this week. Expectations of a hike is helping to fuel already strong Sterling buying on yield grounds and the UK currency will look to maintain strength ahead of Thursday’s decision.

Swiss franc

The Swiss franc strengthened sharply to highs of 1.21 against the dollar on Monday and also pushed to 1.6460 against the Euro before a retreat back to 1.65. The UK terrorism alerts prompted some safe-haven franc buying, but the impact was measured.

The Swiss currency should gain support on economic risk aversion as credit conditions gradually tighten. Any evidence of increased stresses within the Euro-zone property sector would provide important franc support.

The Swiss economic data remained strong with the PMI index rising to 62.8 in June from 58.9 which suggests a renewed acceleration in growth. Speculation that the bank could sanction an inter-meeting rate increase will help underpin the Swiss franc in the short term, especially if there is a strong inflation report.

Australian dollar

After a correction weaker, the Australian currency tested fresh 18-year highs against the US currency in local trading on Monday with gains to around 0.8550 as high-yield currencies remained strong and the dollar lost ground. This pattern of trading continued in US trading with the Australian dollar pushing to a fresh high around 0.86 against the US currency.

There was a slowdown in the Australian PMI manufacturing index for June, but the data was solid and markets are still looking for a further Reserve Bank interest rate increase this quarter. The underlying interest in carry trades and high-yield instruments will continue to underpin the currency in the very short term, although volatility levels are liable to increase. The retail sales data will also be watched closely.

Source: VantagePoint Software, Market Technologies, LLC