by Darrell Jobman, Editor-in-Chief TraderPlanet.com
Commentaryfor Friday, September 5, 2008
EUR/US$
The Euroremained under pressure in early European tradingon Friday and tested the 1.52 level against the dollar, a fresh 2008 low for the currency.
The German economic dataremained weak with a further 1.7% decline in industrial production for July after a marginal 0.1% increase previously. The data will maintain market fears over the Euro-zone economy following a stream of weak data.
There were a barrage of ECB comments during the day and, in general, the comments continued to take a tough line on inflation, although there were some comments that the inflation rate may have peaked. The Euro is still struggling to gain any benefit from the rhetoric with Russian fears having some negative background impact.
The US non-farm payroll data recorded an employment decline of 84,000 in August from a revised 75,000 drop previously, the eighth successive monthly decline with falls across most sectors. The unemployment rate rose sharply to 6.1% from 5.7% compared with expectations of the rate being unchanged or rising slightly. The household survey recorded a sharp decline in employment and a small drop in the workforce.
The data will reinforce unease over the US economic trends and will cast further doubt on any possibility of an interest rateincrease over the next few months. There will also be some speculation that there will be a Fed shift back towards an easing bias. The negative dollar impact was offset by fears over the global economyand the dollar settled near 1.4260 after lows near 1.4340.
Yen
The dollar found support close to the 106 area against the yen in local trading on Friday while the Euro rebounded from 13-month lows near 150.60.
Higher volatility is liable to remain a key short-term market feature due to increasing fears over the regional and global economies. There will be speculation over further capital repatriation back to Japan as global risk aversion remains higher, especially as there was a weak US payroll report on Friday and further equity-market losses.
There will, however, also be scope for Japanese investorsto push funds overseas given underlying yield considerations. There will also be scope for a corrective yen retreat following strong gains on the crosses this week.
Sterling
The UK currency weakened further in Asian trading on Wednesday with a fresh 30-month low below 1.76 against the dollar. The sharp drop in equity pricesundermined risk appetite and this put downward pressure on high-yield currencies.
There were also increased fears over the UK financial sector, especially as the new ECB liquidity rules will make it more expensive to secure funding from Europe. There will be additional pressure on theBank of Englandto extend the support package after it expires in October.
There were no UK data releases during the day, but underlying confidence in the economy remained at a very low level. The growth and inflation data will be watched closely next week for further evidence on conditions. Sterling settled around 1.7650 against the dollar, just above fresh 30-month lows.
Swiss Franc
The Swiss currency retained a firm tone against the Euro on Friday as global stock marketsremained under downward pressure with highs close to 1.5810 before a partial retreat. The dollar again struggled to sustain gains above the 1.1150 level in choppy trading conditions.
Overall fears over the global economy will tend to remain higher and this will tend to underpin the franc on defensive grounds. Unease over the domesticbanking sector will still be a negative factor for the Swiss currency.
National Bank Chairman Roth stated that growth slow over the second half of 2008 although he also stated that the slowdown was in line with the bank’s June projections. Markets will be expecting interest rates to remain on hold at the September meeting, but there will be some speculation over a December reduction.
Source: VantagePoint Intermarket Analysis Software
Australian dollar
The Australian dollarremained under pressure in local trading on Friday with lows near the 0.81 level against the US dollarand it dipped below this level in Europe.
There was a strong increase in risk aversion which triggered a further sharp reduction in carry trades and this undermined the local currency. Confidence in the domestic economy will remain weak with the construction PMIindicating a further contraction. Global trends will still tend to dominate and there will be the threat of a further capitulation in carry trades if financial-sector risk continues to increase.
Following the US employment report, the Australian dollar retested lows below the 0.81 level with a further unwinding of carry trades.
