by Darrell Jobman, Editor-in-Chief, TraderPlanet.com
Commentary for Thursday, October 23, 2008
EUR/US$
The Euro found some support below the 1.28 level against the dollar on Thursday, but struggled to make any significant headway for much if the day as rallies quickly attracted selling pressure.
The latest US data recorded an increase in initial jobless clams to 478,000 in the latest week from 463,000 previously which continued to suggest underlying stresses in the labour market and confidence in the economy will remain weak.
Federal Reserve officials will be reluctant to make any further comments on monetary policy ahead of next week’s FOMC meeting with markets still expecting a further rate cut of 0.50%.
There were further underlying stresses in emerging markets wit the Latin American currencies generally weak. There was some temporary relief on speculation that the IMF would agree a substantial US$1trillion support package and this eased immediate dollar demand, but there were still important underlying stresses.
The Euro-zone industrial orders data recorded a monthly decline for August which reinforce pessimism over the region. The comments from ECB officials retained the more dovish slant seen over the past week. Gonzalez-Palermo, for example, stated that there was scope to lower interest rates without undermining inflation control.
The Euro-zone current account remained in deficit for August at EUR8.4bn with net investment outflows. There will be further fears over capital outflows and sentiment will remain weak, but there is scope for longer-term buying to emerge and the Euro pushed back to 1.29 later in US trading.
Yen
The yen remained strong during Thursday as risk appetite remained at very low levels and there was further defensive demand for the Japanese currency.
The latest Japanese trade surplus also recorded further weakness in exports with annual growth held to 1.5% as shipments to the US continued to weaken.
Markets will remain on increased alert over Ministry of Finance rhetoric in the near term given the greater risk of official action to stabilise markets. Yen volatility has spiked to extreme levels, especially against European currencies, which will cause concern and there will be greater unease over the economy.
There is likely to be some speculation over a move to cut interest rates and the dollar attempted to recover from lows below the 97 level with comments that markets were being watched closely. The yen strengthened further in US trading with a peak near 96.00 as risk appetite remained depressed before a retreat to 97.30 as equity markets rallied.
Sterling
Sterling rallied at times during Thursday, but struggled to make significant headway and gains quickly attracted fresh selling pressure.
UK retail sales fell 0.4% in September with the annual increase at a three-year low of 1.8%, although there will be some relief that the decline was not even sharper. There was also a small recovery in the number of BBA mortgage approvals over the month even though there was an annual decline of over 50%.
There will be unease over the GDP data on Friday with the probability that it will record a contraction in the economy for the first time in over 13 years. Comments from Bank of England officials have continued to suggest that they will cut interest rates again in the short term with Governor King stating that the bank had room to act.
The UK currency weakened to 0.7960 against the Euro and tested levels below 1.61 against the dollar before a recovery to 1.62.
Swiss Franc
The Swiss currency found further support close to the 1.17 level against the dollar on Thursday and pushed back to 1.16. The franc remained firm against the Euro with solid support on dips towards the 1.50 level, although it weakened significantly from its best levels as Wall Street attempted to rally in late trading.
Emerging-market currencies remained under selling pressure which provided some underlying support to the Swiss currency, especially as wider risk appetite was still at depressed levels.
Source: VantagePoint Intermarket Analysis Software
Australian dollar
There was an Australian dollar retreat to lows near the 0.66 level against the US dollar in local trading on Thursday before a weak corrective move back to 0.67. There will be further concerns over the domestic and global economy with the combination of falling commodity prices and elevated risk aversion a negative influence for the currency.
The Australian dollar is, however, likely to attract some support on valuation grounds, especially after massive losses over the last three months and it is still showing some degree of resilience. The currency moved stronger to near 0.67 in US trading as commodity currencies attempted to correct stronger.
