EUR/USD
The Euro remained generally on the defensive during Monday and dipped to lows near 1.3070 during US trading as the dollar also managed to secure some recovery from losses late last week.
There was still no agreement between the Greek government and private-sector creditors which undermined confidence, especially as the Euro-zone continued to take a hard line on any additional support for Greece which increased default fears. Chancellor Merkel’s stance was that Germany would not back any increase in the rescue package for Greece even if estimates of the amount required was increased.
Either the government will have to find additional savings which, politically, will be extremely difficult or there will need to be even bigger losses for private creditors. Any such deal for creditors would be regarded as an effective default by the ratings agencies. There were further concerns surrounding Portugal’s debt during the day as yields rose to fresh record highs as fears over a Portuguese default also increased.
There was speculation that the European banks would seek a further sharp increase in emergency funding at the second long-term repo operation which also triggered expectations of longer-term Euro vulnerability on the massive ECB stimulus with the central bank also under pressure to cut interest rates again.
The US economic data releases did not have a major impact and the Euro recovered from losses from late in the New York session with further Euro gains in Asia on Tuesday as there was renewed dollar weakness on an improvement in risk appetite and fresh hopes surrounding a Greek debt deal. Both currencies remain plagued by a lack of fundamental support and the Euro rallied back towards the 1.32 area.
Source: VantagePoint Intermarket Analysis Software
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Yen
The dollar initially held around 76.70 against the yen on Monday before retreating sharply as there was fresh demand for the Japanese currency as the Euro dipped sharply on the crosses.
The yen gained some support from a deterioration in risk appetite as fears over a repatriation of Euro-zone funds increased.
As far as the economic data releases are concerned, there was a slight increase in the PMI manufacturing index to 50.7 from 50.2 while there was a 0.5% increase in household spending in the year to December. The preliminary industrial production output data was also stronger than expected with a 4.0% increase. Nevertheless, there will still be a high degree of unease over fresh yen gains and there will be continued speculation over intervention to weaken the currency.
Sterling
Sterling again found support on dips towards the 1.5650 level against the dollar on Monday and pushed back to challenge resistance levels above 1.5720 as the US currency faltered again. Sterling was unable to break through 0.8350 against the Euro and consolidated in the 0.8380 region.
The latest GfK consumer confidence reading improved to -29 from -33 previously which will provide some support to sentiment, but confidence will inevitably remain very fragile amid fears over the consumer spending outlook. The PMI data releases this week will be very important in determining confidence in the domestic outlook with the manufacturing survey due on Wednesday.
Safe-haven considerations will also remain important and there will be further speculation over defensive inflows into the UK as a refuge from persistent uncertainty surrounding the Euro-zone.
Swiss franc
The dollar pushed to highs near 0.9210 against the franc on Monday before reversing course and dipping back towards the 0.9140 area in choppy trading conditions. The Euro/Swiss cross was an important focus as the Euro retreated to below the 1.2050 level where there were reports of both stop-losses on long Euro positions and National Bank buy orders. In the event, there were no major fireworks after this level broke and the Euro consolidated in the 1.2050 area.
Markets will still be on high alert over the potential for central bank intervention and volatility is liable to spike higher given the bank’s repeated determination to defend the 1.20 level.
Source: VantagePoint Intermarket Analysis Software
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Australian dollar
The Australian dollar weakened steadily on Monday as risk appetite remained more fragile and dipped to lows near 1.0520 against the US dollar before finding support.
There was a small increase in business confidence to a 7-month high while credit growth was in line with expectations which did not have a major impact.
There was renewed demand for the Australian currency in Asian trading on Tuesday as risk conditions improved with markets also focussing on yield support which pushed the currency to a high around the 1.0640 area.
