by Darrell Jobman, Editor-in-Chief TraderPlanet.com
The Euro pushed to just above the 1.58 level against the dollar in early Europe on Thursday, but was unable to sustain the gains and generally drifted weaker during the day.
Energy and gold prices again had an important impact on the US currency during the day. Oil prices advanced to a new record high in Asia around US$135 per barrel, but there was a general retreat during the day. As gold prices also weakened, there was increased pressure for a Euro correction weaker.
The latest Euro-zone industrial orders data recorded a 1.0% monthly decline for a 2.5% annual fall, maintaining the recent weak trend. Although the German evidence has been generally firm this week, data from other Euro-zone economies has been less favourable, illustrating the risk of further divergence within the Euro area.
In this context, the latest PMI data will be watched very closely on Friday and the Euro will be vulnerable to a larger correction weaker if there is a slide in the PMI indices. In particular, a manufacturing-sector decline to below the 50.0 level would be an important negative factor.
US jobless claims were slightly lower at 365,000 in the latest week from a revised 374,000 the previous week. Although continuing claims continued to increase, there will be some further relief that there was no evidence of further deterioration at this stage. The latest data will be watched closely for further evidence on the housing sector during Friday and a significant recovery in existing home sales will be required to boost confidence in the economy.
Domestically, the all-industries index rose 0.5% for March, but there was still a 0.9% annual decline. The trade surplus fell by over 40% in the year to April as export growth slowed and high energy costs put upward pressure on imports. The slowdown in exports to major markets will create important reservations within the Finance Ministry over rapid yen gains.
The near-term Japanese currency moves are still likely to be dominated by global market trends and the dollar was able to find some support below the 103.0 level on Thursday. Asian markets attempted to stabilise with the Nikkei index rebounding from intra-day lows.
The dollar again tested levels below the 103.0 level in Europe before rebounding to 104.30 in US trading as Wall Street regained ground. Underlying credit-related fears remain at a reduced level which continued to provoke some underlying yen selling.
Just ahead of the UK data releases on Thursday, Sterling found support below the 1.97 level against the US dollar.
UK retail sales volume fell 0.2% in April after a revised 0.2% decline the previous month. The drop was, however, less than expected and the March data was revised up slightly. The evidence still shows a clear slowing in spending, but the data will ease immediate fears to some extent and provide a near-term cushion to the UK currency.
The latest CBI industrial survey also recorded an improvement to -10 in May from -13 previously as the prices component remained robust which will reinforce Bank of England fears over inflation trends.
Sterling recovered some ground against the Euro following the sales data with a move to highs around 0.7930, reversing the sharp decline seen on Wednesday while there was a peak around 1.9850 against the dollar. Sterling will look to gain some support from underlying yield support.
The dollar dipped to lows around 1.0230 against the Swiss currency on Thursday before rallying to 1.0330 in US trading. The franc moves were still strongly correlated with the trends in global stock markets and the currency weakened to 1.6250 against the Euro as equity markets stabilised.
Degrees of risk aversion will remain very important for Swiss currency moves in the short term. In comments on Thursday, National Bank member Hildebrand stated that the franc level was not a threat to exports and that the room for manoeuvre on interest rates had narrowed which will provide some currency support.
The Australian dollar pushed to a 25-year high against the US currency on Thursday. Domestically, the currency was still gaining support from the robust stance from the Reserve Bank earlier in the week. International trends were still dominant with the Australian dollar gaining support from underlying US dollar weakness and the strength of commodity prices.
These trends could continue given the momentum that has built up, but there are also now clear risks of a very sharp correction and the Australian currency dipped to lows around 0.9550 in New York.