by Darrell Jobman, Editor-in-Chief, TraderPlanet.com
Commentary for Monday, November 10, 2008
EUR/US$
The Euro pushed stronger in Asian trading on Monday and looked to extend the gains in Europe with a peak near 1.2930. It gained initial support from a rebound in equity prices on hopes that there would be decisive measures by international governments to expand fiscal policy.
The Euro failed to sustain the gains and dipped back to below the 1.28 level in New York. Trading volumes declined later in the day ahead of Tuesday’s US Veteran’s Day holiday.
Even though the pace of decline slowed, dollar Libor rates continued to fall on Monday as stresses continued to ease gradually. Defensive demand still held firm which helped underpin the dollar, especially as there are still major fears over the global economy.
There will also be major concerns over the US economic conditions following the very weak payroll report on Friday which will dampen dollar support. Markets will continue to monitor political developments closely with a focus on Obama’s appointments and any progress towards a second fiscal stimulus.
There were further comments from ECB officials on Monday which suggested that interest rates could be cut again at the December policy meeting. The latest Sentix index of investor confidence also continued to deteriorate in the latest reading and the German ZEW index will be watched closely on Tuesday to assess how fast the economy is weakening. Any stabilisation in the index would support Euro sentiment to some extent.
Yen
Over the weekend, the Chinese government announced a US$600bn stimulus package which helped improve sentiment on hopes that the regional and global economy could be stabilised. There was a significant rally in regional equity prices with the Nikkei index rising by around 5.0% and there will be expectations of further measures by the principal global authorities.
The domestic economic fears will still be a very important influence and Japanese core machinery orders fell by 10.4% in the third quarter despite a 5.5% increase for September.
The dollar struggled to move much above 99.0 against the yen with resistance levels still difficult to break as market confidence remains very fragile. In this context, the dollar weakened back to lows below 98 in US trading as Wall Street retreated while the yen also reversed losses against the Euro.
Sterling
After testing record lows beyond 0.82 against the Euro, the UK currency found some support on Monday, but was still generally on the defensive and it also failed to hold above 1.58 against the dollar with a slide to lows below 1.56.
There were reports that the government will sanction an additional fiscal package including tax cuts to help support the economy and this will help underpin confidence to some extent.
Input producer prices fell sharply by 5.6% in October which will reinforce expectations that inflation pressures are diminishing rapidly, especially as there was also a decline in output prices. Although there will still be unease over the impact of Sterling weakness, the Bank of England is likely to focus on the growth risks.
The inflation report will, therefore, be watched closely on Wednesday for further details on the bank’s assessment of economic conditions and a very severe downgrading of growth prospects would continue to undermine the UK currency and sentiment is liable to remain weak.
Swiss Franc
The dollar found support close to 1.17 against the franc on Monday and pushed to highs near 1.18 in New York. The franc was undermined initially by an improvement in risk appetite, but proved more resilient in US trading as Wall Street retreated from opening highs. From lows beyond 1.5150 against the Euro, the franc strengthened back to 1.5035.
Source: VantagePoint Intermarket Analysis Software
Australian dollar
The Australian dollar bounced higher in local trading on Monday with a peak above the 0.69 level against the US currency. Sentiment was boosted by the Chinese fiscal stimulus which triggered a rally in commodity prices and also boosted regional confidence.
There will still be important domestic risks with the Reserve Bank maintaining a cautious approach towards the economy. Overall sentiment will also remain very fragile and a reversal in equity prices pushed the currency lower in New York. The Australian dollar was also unsettled by a retreat for metals prices and dipped to below the 0.67 level after failing to mount a serious challenge on the 0.70 resistance band.
