by Darrell Jobman, Editor-in-Chief, TraderPlanet.com
Commentary for Friday, November 14, 2008
EUR/US$
The Euro was unable to sustain gains above the 1.28 level on Friday and weakened to lows near 1.26 as European equity markets struggled to sustain initial gains.
The US data maintained a weaker tone on Friday with a particular focus on retail sales. There was a headline sales drop of 2.8% for the month while there was also a 2.2% underlying decline. Although there was a sharp fall in gasoline sales as prices dropped, there were also declines across all the major categories.
The weak data was certainly expected, but the sharp decline in sales will reinforce fears over the economy, especially as the ECRI leading index deteriorated at the fastest rate for 60 years according to the latest release. The University of Michigan consumer confidence index offered some relief with a marginal rise as gasoline prices fell, although it was still at historically very weak levels.
The European data also maintained a weaker tone with Euro-zone GDP growth contracting by a provisional 0.2% for the third quarter. This economy was also technically in recession after the second-quarter decline. The French economy grew marginally, but there was a sharp 0.5% decline in Italian GDP.
The data will reinforce expectations of lower interest rates and ECB officials continued to hint that rates could be cut again at the December meeting.
ECB Chairman Trichet did warn that a globally-unified policy stance was undesirable. Comments and actions by officials at the G20 meetings will still be watched very closely over the weekend and a broadly unified stance on fiscal policy would tend to support the Euro while discord would unsettle the Euro. The Euro pushed back towards 1.28 in US trading as Wall Street looked to recover.
Yen
The Nikkei index rallied on Friday after three successive daily declines, but underlying sentiment was still very cautious given fears over economic trends.
The dollar was also undermined by exporter selling as companies took advantage of the yen retreat. The G20 meetings will be watched closely and any evidence of a concerted and unified approach to boost the international economy would tend to weaken the yen. In contrast, a lack of progress would tend to strengthen the Japanese currency early next week.
Comments on currencies will also be watched very closely amid speculation of measures to stabilise markets following another period of very high volatility. The dollar weakened back towards the 96.10 support region in Europe on Friday before rallying to near 97.50 in New York.
Sterling
Sterling dipped to fresh record lows against the Euro on Friday with a move to 0.8635 before a recovery to 0.8565. The UK currency also tested levels below 1.47 against the dollar as markets look to trigger stop-loss Sterling selling before a recovery back to 1.49.
There were no further UK data releases during the day while Prime Minister Brown stated that there was room for further interest rate cuts. If there is clear evidence of political pressure on the Bank of England to cut interest rates aggressively further, then there would be a further serious loss of confidence in the currency.
The growth and inflation data will be monitored next week and a faster than expected decline in the headline inflation rate would reinforce expectations of a further sizeable rate cut at the December meeting.
Swiss Franc
The dollar was unable to test resistance levels close to 1.20 against the Swiss currency on Friday and fluctuated around the 1.19 level. The franc retained a weaker tone against the Euro, but found support close to 1.52.
There will be further concerns over the Swiss economy, especially given the impact of weakness in the financial sector and a downturn in key export markets.
The franc moves will still be influenced strongly by trends in risk appetite and the currency will lose support if there are sustained gains in global stock markets.
Source: VantagePoint Intermarket Analysis Software
Australian dollar
The Australian dollar drifted weaker in local trading on Friday as caution prevailed. There was some support from industrial commodity prices, although there was a decline in oil prices and selling pressure was still reduced from recent levels.
International market trends will tend to dominate in the short term with the G20 meetings watched closely Any disappointment over the outcome would tend to weaken the Australian currency early next week. The Australian dollar managed to rally back to above 0.66 against the dollar in New York as Wall Street rallied from lows.
