by Darrell Jobman, Editor-in-Chief, TraderPlanet.com
Commentary for Thursday, October 9, 2008
EUR/US$
The Euro pushed to highs above 1.3750 against the dollar on Thursday, supported by gains on the crosses, but was again unable to sustain the gains and weakened in US trading.
Money-market conditions eased at the short end, but there were still major stresses for three-month funds and credit-market spreads were also still at elevated levels.
Sentiment surrounding the financial markets initially strengthened following the co-ordinated interest rate cuts on Wednesday and this lessened dollar demand slightly, but tensions were still severe. The US Treasury stated that it would consider buying direct stakes in the banks and markets will be looking for further action at the weekend G7 meetings.
US jobless claims fell to 478,000 in the latest reporting week from a revised 498,000 the previous week as there was a reduced impact from hurricanes. The data still suggested a weak labour market, although there was no evidence of serious deterioration at this stage.
Following the interest rate cut on Wednesday, the ECB announced technical changes to its money market operations and the changes should be significant in easing the market stresses. There were expectations of further ECB rates over the next few weeks and the comments from ECB officials retained the more dovish tone.
Wall Street was subjected to further heavy selling pressure later in the US session and the Euro dipped to test levels near 1.36 as there were renewed losses on the crosses. If US economic fears increase, then the dollar will find it more difficult to gain support.
Yen
The domestic Japanese data was sharply weaker than expected with a 14.5% decline in core machinery orders for August which will increase fears that the Japanese economy will be more vulnerable than expected. In response, the government announced that it would look for a second stimulus package. The weak data will also increase Japanese resistance to rapid yen gains.
Risk appetite improved slightly in Asia on Thursday and the dollar was able to regain the 100 level with a move back to a peak around 101.40 while the Japanese currency also corrected sharply on the crosses.
Markets will still remain very cautious in the short term with volatility set to persist. The yen regained some ground as global equity markets failed to sustain gains and strengthened back through the 100 level as Wall Street fell sharply. Markets will be on alert for any verbal intervention by the Bank of Japan to curb yen gains.
Sterling
The UK currency found support below the 1.72 level against the dollar and attempted to rally, but the currency was unable to make strong headway and was subjected to renewed selling later in the day with fresh multi-year lows near 1.71.
The Halifax Bank recorded a further 1.3% decline in house prices for September, although this was slightly better than expected. The goods trade deficit was worse than expected at GBP8.2bn for August from a revised GBP8.2bn the previous month. The shortfall will maintain a lack of confidence with signs of weakness in the export sector as global demand fades.
Growth and banking-sector fears will still tend to dominate market sentiment for now and the UK currency should still gain some support if there is evidence of stabilisation in the banking sector.
Swiss Franc
The dollar found support close to 1.1230 against the franc, but was unable to gain strong momentum with resistance close to 1.1350. The franc found support weaker than the 1.55 level against the Euro and regained ground as stock markets weakened again.
The Swiss government and National Bank continued to warn over a sharp slowdown in the economy with the government expecting GDP growth to be below 1.0% next year. There will also be fears that weakness in the financial sector will weaken the economy as a whole.
The franc will still gain some support on defensive grounds, although there were some tentative signs that liquidity conditions were easing.
Source: VantagePoint Intermarket Analysis Software
Australian dollar
The Australian dollar recovered strongly in local trading on Thursday as there was a correction from the very heavy losses seen over the previous 24 hours.
Domestically, there was a small 2,200 increase in employment for September which will reinforce expectations of a sharp slowdown in the economy and further interest rates cuts.
The Australian currency pushed to highs above 0.71 against the dollar and attempted to hold above 0.70 in New York even though equity prices were generally weaker. The late plunge on Wall Street pushed the currency down to near 0.68 late in US trading and volatility will remain extremely high in the short term.
