EUR/USD
The Euro was able to find support below 1.30 against the dollar on Thursday and edged higher to the 1.3050 area, although it was trapped in smaller ranges as markets looked to consolidate after sharp Euro losses earlier in the week.
The Euro-zone PMI manufacturing index edged higher to 46.9 for December from 46.4 previously with a similar improvement in the services sector. There was relief that the indices had not declined further, although the data still suggested that recession was likely over the next few months. The latest Spanish auction result was also better than expected which helped lower peripheral yields and prevent a further deterioration in confidence, although uncertainty remained extremely high.
Although there was no announcement on credit ratings by Standard & Poor’s, markets remained on high alert as French officials attempted to downplay the potential impact of any cut. ECB President Draghi remained very cautious over the possibility of any additional monetary support by the central bank, but there was further speculation that interest rates would be cut and that the bank would eventually cave-in to demand for action if the situation deteriorated further.
There was a downgrading of several global banks by Moody’s which damaged sentiment to some extent and IMF Head Lagarde also warned over the threat of a sharp global downturn. In this environment, there was the risk of further de-leveraging in the banking sector and a flow of funds into the dollar. There was also some evidence of capital repatriation by European institutions.
The US industrial production data was weaker than expected with a 0.2% monthly decline for November. In contrast, the New York manufacturing PMI index rose to 9.5 from 0.6 previously while the Philadelphia Fed index also increased. Jobless clams fell to 366,000 in the latest week from 385,000 previously, maintaining a slightly more positive view over US prospects.
Source: VantagePoint Intermarket Analysis Software
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Yen
The dollar was unable to regain a position above 78 against the yen on Thursday, but found support on dips towards the 77.70 level. The Euro found support on dips towards the 101 area against the Japanese currency.
There were further uncertainties surrounding the Asian economy as the Chinese equity market continued to weaken with growth estimates also being downgraded. In this environment, there was further defensive yen demand and any global process of de-leveraging will also tend to support the yen.
The same pressures will also increase demands that Japanese competitiveness should be preserved and markets will remain on high alert over the potential for intervention.
Sterling
Sterling found support above the 1.54 area against the dollar on Thursday and advanced to highs around 1.5540 as the US currency lost wider momentum. Sterling held a strong tone against the Euro and strengthened to a high just beyond 0.8390 for fresh 9-month highs.
There was a 0.4% decline in retail sales for November which was slightly worse than expected, although it was offset by an upward revision to October’s data. Markets remained extremely cautious over the data and the UK outlook given reports of weak spending trends.
There was further evidence of defensive Sterling demand, although there was also some evidence that buying might be fading as there was a lower bid/cover ratio in the latest auction. A call from French ECB Board member Noyer that the UK credit rating should be downgraded did not appear to have a major impact, although it did ensure further political tensions.
Swiss franc
The National Bank held interest rates close to zero at the latest policy meeting in a 0.00-0.25% range and also left the minimum Euro level unchanged at 1.20. There had been significant speculation that the central bank would announce an increased minimum level or push interest rates negative and the franc strengthened sharply following the decision to leave policy on hold.
The franc advanced to near 0.9380 against the dollar and 1.2220 against the Euro. Bank officials still expected that the franc would weaken over time given its high level, but were encouraged that the extreme over-valuation had been combated successfully. The bank also cut its 2012 GDP forecasts and recession fears are liable to persist.
Source: VantagePoint Intermarket Analysis Software
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Australian dollar
The Australian dollar found support below 0.99 against the US currency on Thursday and moved back towards parity as there was a stabilisation in risk appetite. Global influences remained dominant and there was some relief that equity markets were able to recover from their worst levels.
Regional growth trends remained important and an upgrading of Indonesia’s credit rating provided some support. There was still a high degree of uncertainty surrounding China’s outlook and concerns over the global banking sector which were important in curbing demand for the Australian dollar.
