by Darrell Jobman, Editor-in-Chief, TraderPlanet.com
Commentary for Tuesday, November 11, 2008
The Euro failed to push above the 1.28 level against the dollar on Tuesday and weakened steadily through the day. The Euro was undermined to some extent by technical selling pressure especially with liquidity reduced by the US Veteran’s Day holiday, and dipped to lows near 1.25.
The Russian rouble was subjected to renewed selling pressure during the day with rumours over a more decisive devaluation for the currency and this will tend to be a negative factor for the Euro.
The German ZEW business confidence survey improved to -53.5 in October from -63.0 the previous month which should help stabilise sentiment to some extent. There were still warnings that the Euro-zone economy was likely to face recession next year and there were reports that the German Economic institutes would take a notably downbeat tone in their forthcoming report.
Thee were no major US data releases, but there was a reported increase in consumer confidence as gasoline prices fell. In contrast, there was a further reported decline in retail sales according to the latest weekly data and economic fears persisted.
There has been a further decline in dollar Libor rates, but the potential dip in dollar demand has been offset by renewed defensive demand for US Treasuries as equity markets have been subjected to selling pressure.
Markets will continue to monitor political trends closely with a particular focus on financial appointments and comments from Fed officials will also be monitored on Wednesday.
Asian stock markets were generally weak on Tuesday which provided underlying support to the Japanese currency. Domestically, the latest trade data recorded a decline in exports of 9.9% in the first 20 days of October which will maintain Japanese sensitivity to the yen’s value, especially with the economy generally weak.
There will also be the threat of increased trade friction between US and Asian countries which may unsettle the US currency unless there is a firm commitment to a strong dollar policy.
After holding close to the 98 level against the yen in early Europe on Tuesday, the Japanese currency edged stronger against the dollar and also secured renewed gains against the Euro as stock markets came under renewed selling pressure.
Sterling dipped to a fresh record low against the Euro on Tuesday, but again found support beyond the 0.82 level and strengthened back to 0.8135 in US trading. The UK currency dipped to test levels below 1.54 against the dollar and the trade-weighted index fell to a 12-year low. Sentiment remained very fragile on economic fears with additional fears that there would be weak demand for the increased gilt issuance.
The UK visible trade deficit fell to GBP7.5bn for September from GBP8.0bn the previous month and there will be some encouragement over export trends. The oil account improved while there were also special supportive factors.
The Wednesday employment data will be important for Sterling sentiment with the potential for a further sharp increase in unemployment which would reinforce pessimism over underlying economic trends.
The Bank of England inflation report will also be watched very closely and any suggestion that inflation will undershoot the 2.0% target on a two-year view would increase speculation over further near-term cuts in interest rates which would also tend to undermine Sterling confidence.
The franc regained ground against the Euro on Tuesday and pushed to test resistance levels below 1.49. A general dollar advance put the Swiss franc on the defensive against the US currency with lows near 1.1880 which was a fresh 2008 high for the dollar.
The franc gained some support in Europe from a renewed decline in risk appetite as European stock markets were subjected to renewed selling pressure.
Fears over the global economy also persisted, although reservations over the Swiss economy were still an underlying negative franc influence.
Australian dollar confidence remained fragile in local trading on Tuesday as Asian stock markets were generally weaker. Domestically, the latest business confidence survey recorded a sharp deterioration in conditions for the latest quarter which will reinforce fears over the economy, although the impact should be measured given that markets are already expecting interest rates to decline further.
Global sentiment shifts will continue to dominate near-term Australian dollar moves and a further slide in equity markets pushed the Australian currency to lows below the 0.65 level in US trading before a rebound. Volatility levels are liable to remain high in the short term.