by Darrell Jobman, Editor-in-Chief

Daily currency analysis for Wednesday, July 30, 2008


The Euro regained the 1.56 level against the dollar in European trading on Wednesday, but was unable to sustain the advance and consolidatedjust below this level ahead of the US open.

The ADP employment report recorded an increase in private-sector employment of 9,000 in July after a revised decline of 77,000 the previous month. The ADP data has tended to over-estimate employment over the past few month and much of the gains were in the small-company sector which are not picked up by the monthly payroll survey. In this context, there will be doubts whether the Friday employment data will be as positive, although there are still likely to be greater reservations over aggressive dollar selling, especially with GDP data on Thursday.

The Euro-zone industrial confidence index weakened to -0.21 in July from +0.14 the previous month which was a fresh five-year low. Business confidence weakened sharply while consumer conditions also continued to erode. The data will reinforce fears over a sharp downturn in the Euro-zone following a sharp deterioration over the past few months.

There will also be increased market fears over divergence within the Euro area and, at the extreme, there will be speculation that some countries such as Italy could leave the Euro area. In this environment, overall currency confidence will remain fragile.

The Fed, ECB and Swiss National bankannounced that dollar TAP auctions would be extended for a longer period. This continues to show fragility in the money marketsand will tend to lessen the prospect of any Fed tightening which will curb US currency support.

The dollar strengthened to a high around 1.5520 against the Euro before consolidatingaround 1.5585 with a recovery in oil pricesencouraging a US correction weaker.

Source: VantagePoint Intermarket Analysis Software


Domestically, there was a 2.0% decline in industrial production for June which was slightly worse than expected and the Industry Ministry was also less confident over the outlook over the next few months which will curb yen sentiment.

There will also be further interest in high-yield offshore fundswith further speculation that summer bonuses will be channelled into overseas funds. This potential pressure on the yen will be offset by an increase in exporter selling above the 108.0 level. The yen was holding close to 108.0 on Wednesday as the dollar continued to probe important technical resistance levels.

The US currencypushed the 108.30 level, but still struggled to break through this level and drifted weaker in New York.


Sterling weakened to three-week lows around 1.9750 against the dollar on Wednesday as the US currency strengthened before recovering back to 1.98 later in US trading. Sterling edged stronger to 0.7855 against the Euro which was the highest level for four weeks.

There were no significant UK data releases on Wednesday and international considerations will tend to dominate over the remainder of the week.

There will still be serious unease over the UK economic conditions with confidence likely to remain depressed in the latest survey released overnight. Recent data will reinforce fears over a sharp downturn in consumer spendingand a slide into recession, especially with energy costs set to rise further.

The serious deterioration within the Euro-zone will continue to provide some important short-term protection to the UK currency.

Swiss Franc

The franc was unable to regain the 1.04 level against the dollar on Wednesday and dipped to lows around 1.0520 before consolidationaround 1.0470. The Europushed to two-month highs near 1.6340 against the Swiss currency before edging back to 1.6315 in US trading.

The KOF leading index weakened to a fresh five-year low of 0.90 in July from a revised 0.99 previously, maintaining the steady decline from levels above the 2.00 level seen early in 2008. The data will reinforce expectations of a substantial slowdown in the Swiss economy which will limit franc support.

Source: VantagePoint Intermarket Analysis Software

Australian dollar

The domestic data provided no support to the Australian currency with a decline in June building approvals to give a 7.8% annual fall which will maintain unease over the housing sector. The local currency was also unsettled by a renewed decline in commodity pricesand dipped to lows near 0.9450 in early Europe on Wednesday.

The currency came under fresh selling pressure in New York with lows close to 0.94 as gold prices dipped sharply before a cautious corrective recovery as commodity prices rallied.

The Australian dollar will be vulnerable to further selling pressure if there is a weak retail sales reportovernight.