by Darrell Jobman, Editor-in-Chief TraderPlanet.com
Commentary for Tuesday, September 9, 2008
The dollar was unable to hold levels close to 1.4050 against the Euroin Asian trading on Tuesday and retreated towards the 1.41 level in early Europe. The Euro strengthened to test levels above the 1.42 level in New York, but was also unable to sustain the gains and weakened back towards 1.41.
Wall Streetretreated sharply on Tuesday and this tended to weaken the Euro on the crosses which also tended to push the dollar stronger against the Euro as risk tolerances were generally lower with Wall Street coming under pressure as fears over the banking sector returned.
The Euro was also undermined by a fresh decline in commodity prices with crude testing levels towards the US$100 per barrel level in New York. Nevertheless, the relative Euro performance was slightly stronger than might have been expected given the negative fundamentals. There were reports of Asian centralbankEuro buying which supported the currency to some extent while it remained over-sold from a technical viewpoint.
The US data recorded a 3.2% decline in pending home sales for July after a revised 5.8% increase the previous month. The impact is likely to be limited with markets concentrating on the potential for a rebound in the sector following the mortgage-finance companies rescue package over the weekend. There will be further hopes of lower mortgage rates and an improvement in activity.
Elsewhere, there was a recovery in consumer confidence while wholesale inventories continued to rise. Overall confidence in the US economy will remain fragile, but with the dollar still gaining support from fears over the global economy.
The yen retained a firm tone in Asian trading on Tuesday with moves towards 151 against the Euro. The underlying global investment mood is still defensive which is providing underlying support to the Japanese currency, especially as regional Asian currencies were generally weaker.
The yen will maintain a firm tone if the defensive stance persists with choppy conditions liable to continue. The Japanese currency initially lost ground in European trading, but then found renewed support with gains to 107.10 against the dollar and 151.40 against the Euro. There will be further speculation over capital repatriation back to Japan which will help underpin the yen.
The overnight UK economic data remained weak with the BRC reporting a 1.0% annual decline in like-for-like retail sales, the lowest reading for 12 months. The RICS reported that housing activity remained at a very low level even with some sign of stabilisation while prices continued to decline. The UK currency was trapped close to the 1.75 level against the dollar as the US currency remained robust.
UK industrial production fell 0.4% in July while there was a 0.2% dip in manufacturing output which will maintain the underlying lack of confidence in the UK economy, although the impact should be measured given the amount of deterioration priced in.
There were strong pressures for a technical correction after recent heavy selling pressure and this pushed the UK currency to a high of 1.77 against the dollar, but it was unable to sustain the gains. Similarly, Sterling was unable to break the 0.80 level against the Euro.
Swiss currency found support weaker than 1.1350 against the dollar on Tuesday and strengthened to 1.1215 before consolidating around 1.1290 in New York.
The weaker Wall Street trend allowed the franc to strengthen to 1.5930 against the Euro as underlying risk tolerances were still lower following the brief improvement in conditions on Monday.
Two National Bank members are due to make public comments on Wednesday and their take on domestic economic conditions will be important for underlying sentiment towards the Swiss currency, especially with the quarterly monetary meeting due later this month.
The Australian dollar remained on the defensive in local trading on Tuesday. Domestically, the headline retail sales recorded a 1.4% monthly increase, but the methodology of the data series has been changed and the trend estimate which is liable to be more reliable recorded a 0.1% increase. The housing finance data was also subdued which will maintain caution over the economic trends.
Risk conditions will still tend to dominate in the short term and it will be difficult to secure a sustained recovery in risk appetite, especially with underlying credit-related stresses still an important focus.
Commodity prices were an important influence in US trading and a slide in oil and crude prices pushed the Australian currency back towards 0.8050 against the dollar.