by Darrell Jobman, Editor-in-Chief TraderPlanet.com
EUR/US$
The dollar again failed to break resistance levels below 1.5750 against the Euro on Monday. The US currency weakened sharply to near the all-time low of 1.5905 before rallying equally sharply to 1.5790 in choppy trading surrounding the end of the first quarter.
The US Chicago PMI index rose to 48.2 in March from 44.5 the previous month which will offer some hope for the manufacturing sector and the national PMI index will be very important for sentiment on Tuesday. Any improvement in the index would fuel talk of at least a potential recovery in the economy while a figure below 45.0 would reinforce major fears over near-term trends. Overall confidence in the economy remains at a very low ebb with markets expecting a depressed series of readings this week.
Provisionally headline Euro-zone inflation rose to a 16-year high of 3.5% in March from 3.2% previously which will reinforce inflation fears within the ECB. The central bank will, therefore, remain determined to maintain a tough stance on monetary policy to discourage aggressive wage demands, especially with a settlement for the public-sector unions of over 3.5% for this year.
There was, however, also a deterioration in business confidence with particular fears within the financial sector and this illustrates the conflicting pressures faced by the ECB. In particular, there will be increased fears over the Spanish economy which will tend to unsettle the Euro.
Yen
The dollar found support below the 99.0 level against the yen in Asian trading on Monday and pushed back towards the 100 level.
Confidence in the Japanese economy remains fragile with expectations of a weak Tankan survey on Tuesday in Asian trading which would reinforce unease over domestic trends. The Nikkei index was also weak on Monday which maintained fears over the economy, although it will also sustain underlying risk aversion which will tend to support the local currency.
Volatility is liable to be high as the fiscal year starts with some increase in overseas investment realistic which would tend to weaken the Japanese currency, but there will still be a cautious approach. The increase in speculative yen buying will also increase the risk of a correction weaker.
Trading conditions were choppy in US trading with a renewed dollar advance towards the 100 level again as Wall Street attempted to rally, but the dollar was again unable to break through.
Sterling
Sterling remained on the defensive against the Euro on Monday and weakened to fresh all-time lows around 0.7980 in New York trade. The UK currency also dipped to lows near 1.98 against the dollar.
Confidence is likely to remain fragile in the short term with the Hometrack organisation also reporting a further decline in house prices for March. Markets are expecting that the Bank of England will be forced into an early rate cut to support the economy. In comments on Monday, Governor King stated that the was a difficult balancing act required as the bank needed to guard against inflation risks and an excessive slowdown in the economy.
The PMI index for the manufacturing sector will be watched closely on Tuesday as any dip to below the 50.0 level would reinforce recession fears. Any rise in the index would suggest that Sterling competitiveness is supporting industry and underpin confidence.
Swiss Franc
After hitting resistance close to parity, the dollar weakened to test support levels below the 0.99 level on Monday in choppy trading. The dollar recovered back above the 0.99 level while the franc rallied to stronger than 1.57 against the Euro.
The National Bank injected liquidity into the market and also pushed the repo rate lower to counter funding pressures within the money markets and this will raise some fears over the Swiss economic trends.
The Swiss currency will tend to lose some ground if there is an improvement in equity markets at the beginning of the second quarter.
Source: VantagePoint Software, Market Technologies, LLC
Australian dollar
The Australian dollar had a generally weaker trend on Monday with a dip towards 0.9150. The domestic data failed to have a significant impact as consumer inflation expectations held firm. The latest Reserve Bank interest rate decision is due on Tuesday and the statement will be watched closely with the Australian currency vulnerable to some selling pressure if there is a more dovish than expected report.
The currency is still being restrained by underlying risk aversion, although capital flows are liable to be volatile in the short term. In this context, the Australian dollar dipped to near 0.91 in US trading as commodity prices weakened.
