EUR/USD
The Euro was subjected to heavy selling pressure during the European session on Thursday as sentiment was undermined by weak economic data. The flash Euro-zone PMI manufacturing index weakened to 47.7 for March from 49 previously, dashing hopes of a further monthly improvement while the services-sector index was also trapped below the 50 level.
The data had a dual negative impact on the Euro with a renewed increase in unease surrounding the regional growth outlook which undermined confidence directly. There has been further evidence of credit-deleveraging and a tightening in lending conditions which will have an important impact in damaging activity. There were also renewed fears surrounding the peripheral economies and yield spreads rose significantly during the day as confidence in Spain was particularly fragile. Spanish bond yields rose to the 5.5% level for the first time since January.
The weak Euro-zone data, following on from the weak Chinese PMI release had a significant impact in damaging risk appetite as global growth fears increased. These fears had an important impact in boosting defensive dollar demand as equity markets were subjected to fresh selling pressure.
The US jobless claims data was slightly stronger than expected with a decline to 348,000 in the latest week from 353,000 the previous week and close to four-year lows. House prices were broadly stagnant with no change reported for January. Regional President Bullard maintained the more constructive Fed tone towards the economy while Fisher stated that he would not support further quantitative easing, although neither of these are voting members this year.
The Euro dipped to lows below 1.3150 against the dollar, but the US currency was unable to extend the gains and retreated back to the 1.32 area with little changed during the Asian economic session.
Source: VantagePoint Intermarket Analysis Software
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Yen
The dollar was unable to make any fresh impression on the yen during Thursday and dipped sharply during European session. Despite a brief recovery following the US data, there were fresh lows below 82.50 during New York trading. The Japanese currency gained sharply on the crosses with the Euro dipping to lows near 108.50 while Sterling also retreated to near 130.
The yen gained support from the significant deterioration in risk appetite as global growth doubts increased and equity markets were subjected to significant selling. There will be the potential for exporter selling and capital repatriation ahead of the fiscal year-end.
Japanese officials moved to counter yen strength through verbal intervention and there was importer dollar buying at lower levels which helped the US currency move back towards the 83 level on Friday.
Sterling
Wider US gains triggered an initial Sterling decline on Thursday and the selling pressure was compounded by weaker than expected economic data.
The latest retail sales data recorded a headline decline of 0.8% for February following a revised 0.3% gain the previous month, the sharpest decline for 9 months. The data reinforced unease over consumer spending trends and dampened the slightly greater mood of optimism surrounding the economy seen over the past few weeks. There was also a decline in the latest Nationwide consumer confidence index.
There were further underlying concerns over the fiscal outlook as the government was forced to raise its medium-term budget deficit projections
Sterling will also be very sensitive to changes in risk conditions as the currency will be much more vulnerable if there is a general downturn in global risk appetite. There was a dip to lows around 1.5770 against the dollar before rallying back to above the 1.58 level. The UK currency was again unable to strengthen through the 0.83 level.
Swiss franc
The dollar found support in the 0.91 area against the franc on Thursday and pushed to highs around 0.9180 before drifting weaker again as the Euro was again trapped within very narrow ranges.
National Bank member Danthine stated that the franc cap applies day and night as the bank maintained its policy of verbal intervention. There will still be unease that the Euro has been unable to make any headway and there will also be fresh doubts surrounding the Euro-zone economy which will increase the risk of defensive demand for the Swiss currency.
Source: VantagePoint Intermarket Analysis Software
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Australian dollar
The Australian dollar remained on the defensive following the sharp decline seen in the Asian currency during Asian trading on Thursday and retreated to lows below 1.0350 following the weak Euro-zone data before recovering slightly later in the day.
The currency will remain extremely sensitive to global growth prospects with a particular focus on the Chinese outlook following the PMI data. Any deterioration in regional prospects would also increase pressure for a cut in Australian interest rates which would undermine yield support. The Australian dollar was unable to make significant headway in Asian trading on Friday as regional equity markets remained on the defensive.
