by Darrell Jobman, Editor-in-Chief,

Commentary for Wednesday, October 15, 2008


The Euro was unable to push above the 1.37 level against the dollar on Wednesday and was generally weaker in US trading with renewed losses to below the 1.36 level.

European bourses were subjected to renewed and substantial selling pressure with daily declines of over 5% which triggered some renewed defensive demand for the US currency and reinforced fears over the Euro-zone economic outlook.

Credit markets remained tight, but there was a further small decline in Libor rates. As central banks continue to push dollar liquidity into markets, there should still be scope for an underlying reduction in market rates which will also tend to lessen demand for the US currency.

The Wednesday US economic releases were notably weak. Retail sales fell by 1.2% in September with a core 0.6% decline which was the steepest decline for over three years while the New York manufacturing index fell sharply to -24.6 from -7.4 previously which was a record low for the index. The Fed’s Beige Book also reported that the economy weakened in September as credit conditions continued to tighten.

The data releases will reinforce fears that the economy will slide into deep recession and maintain pressure for lower interest rates. Two non-voting FOMC members Bullard and Yellen were cautious over the merits of further interest rate cuts in comments on Tuesday. Chairman Bernanke stated that current monetary policy was adequate while the inflation had improved. The comments suggested that the Fed will be cautious, although markets will continue to price in further interest rate reductions.

As Wall Street weakened sharply, the Euro dipped to lows near 1.3500 against the dollar in US trading.

Source: VantagePoint Intermarket Analysis Software


The dollar found some support below the 101 level against the yen in Asia on Wednesday, but was unable to push above 102. The Euro was also blocked below the 140 level against the Japanese currency and weakened steadily during the day.

The yen gained important support as global equity markets were subjected to renewed selling pressure, but conditions were slightly more orderly with less evidence of forced de-leveraging and an exit from carry trades.

The Japanese currency should continue to gain some important protection from increased fears over the global economy and there will be renewed speculation over Bank of Japan efforts to stabilise the currency if the yen gains rapidly.


The UK unemployment data recorded a further 31,800 increase in jobless claims in September after a revised 35,700 increase the previous month and there was the biggest quarterly increase since the last recession 17 years ago. There will be some relief that the data was not even worse for the month.

Any positive sentiment will be very limited given the fact that employment tends to be a lagging indicator and it certainly did not pick up any further deterioration in conditions seen since the escalation in credit fears and banking crisis.

In this context, markets will be expecting unemployment to rise at a faster pace over the next few months. Sterling hit resistance close to 1.76 against the dollar and dipped to lows around 1.7350 while the UK currency was unable to sustain gains beyond 0.7760 against the Euro.

Swiss Franc

The Euro hit tough resistance close to the 1.55 level against the franc on Wednesday and dipped to lows near 1.5350 in US trading. The dollar was unable to push above 1.14 against the Swiss currency.

The franc gained some support from a renewed decline in global stock markets as European markets fell sharply. There were also further important stresses within Eastern European currencies which provided some net support to the franc as franc-denominated loans were curbed.

The ECB and Swiss National Bank announced that they would provide additional franc liquidity to ease funding pressures and this will tend to weaken the franc slightly, although the impact may be limited.

Source: VantagePoint Intermarket Analysis Software

Australian dollar

The mood of caution persisted in local trading on Wednesday with the Australian dollar dipping to lows around 0.6870 against the US dollar as equity markets stalled. The domestic developments were limited with markets continuing to expect lower interest rates Asian and global growth fears will remain a key feature which will maintain a higher risk profile for commodity prices and the Australian dollar.

As Wall Street retreated and industrial metals prices were subjected to renewed selling pressure, the Australian currency dipped to lows near the 0.67 level, although market conditions were more orderly than seen late last week.