by Darrell Jobman, Editor-in-Chief


The dollar was unable to strengthen through 1.3370 against the Euro on Thursday, but found support close to 1.34 and edged firmer in US trade after a robust industrial survey.

The Philadelphia Fed survey rose strongly to 18.0 in June from 4.0 the previous month, the strongest headline figure for over two years. The orders component was robust, but there was weaker growth in employment. Meanwhile, jobless claims rose to 324,000 in the latest week, a two-month high.

The Philadelphia Fed index will reinforce confidence over the industrial sector’s prospects and underpin the dollar, especially as bond yields rose. The US currency will need speculation over higher interest rates to trigger more aggressive dollar buying.

The flash estimate of the Euro-zone June PMI index was released on Thursday and there was a firm reading for the manufacturing sector with an increase to 55.4 from 54.9 the previous month while there was a solid 58.3 reading for the services sector. There were, however, monthly declines in French consumer spending and Italian consumer confidence which will cause some unease.

The German IFO index will be watched closely on Friday and the Euro will be vulnerable to near-term selling if there is a significant decline in the index. A sustained deterioration in Euro-zone data as a whole would undermine underlying confidence in the currency.

Source: VantagePoint Software, Market Technologies, LLC


The yen has remained firmly on the defensive over the past 24 hours with the dollar testing four-year highs close to 123.70. The yen is still being undermined by yield considerations with further speculation that Japanese funds will launch foreign currency investment trusts. The flow of funds overseas would maintain downward pressure on the yen.

The latest capital flows data recorded a moderate outflow in the latest week which will tend to undermine the Japanese currency slightly. Yield considerations will dominate in the short term and the yen will remain vulnerable to selling as carry trades dominate. There will be some reassessment of the situation if there is a sustained drop in global equity prices and the overall risk profile remains extremely high.

The Japanese trade account recorded a surplus of JPY389.5bn in May with exports rising 15.1% over the year. Strong export gains should ease fears over a downturn in the industrial sector, although the short-term market impact should be limited.


Sterling hit resistance close to 1.9940 against the dollar on Thursday, but found support below the 1.99 level. Sterling also pushed to a four-month high against the Euro close to 0.6710.

In the latest CBI monthly survey, the industrial orders component rose to +8 from +6 the previous month and the overall data was strong even though pricing pressures eased slightly over the month.

Futures markets have priced in more aggressive interest rate increases with December contracts indicating that rates will be above 6.0% compared with 5.50% at present. The expectations of at least two further interest rate increases will support Sterling initially. The UK currency will, however, be very vulnerable to any downgrading of interest expectations if forthcoming economic data is disappointing.

Swiss franc

The franc was unable to maintain gains stronger than 1.66 against the Euro and 1.24 against the dollar on Thursday. Markets continued to sell low-yield currencies on significant rallies which undermined the Swiss currency.

The trade surplus rose to CHF1.26bn in May from CHF0.64bn the previous month as exports rose 14% over the year in real terms. The short-term impact should be limited, but the data will reinforce the fact that the Swiss economy is performing very strongly.

National Bank concerns over inflation will persist and renewed franc weakness would risk more aggressive verbal intervention by the central bank.

Australian dollar

The Australian dollar retreated to 0.8435, but overall corrections were contained as confidence in high-yield currencies remained strong and the currency pushed back to 0.8470 in US trading on Thursday.

There were no significant domestic incentives during the day with global flows into high-yield currencies still the dominant influence. Sentiment will remain strong in the short term, but the currency will be undermined to some extent if there is a renewed drop in commodity prices. Any reversal in carry trades would also risk a downward correction in the currency.

Source: VantagePoint Software, Market Technologies, LLC