EUR/USD
The Euro was initially blocked in the 1.3150 region against the dollar in European trading on Thursday and retreated back towards the 1.31 area. There were expectations that Italy would be forced to accept higher yields at the latest bond auction which dampened sentiment towards the currency. Yields did rise, but the markets had priced in a weak outcome which limited the impact. There was also some relief over the Spanish debt trends which curbed Euro selling pressure despite an underlying lack of confidence.
The latest US data recorded a decline in the US trade deficit to US$46.0bn for February from US$52.5bn the previous month. There was a generally weak recording for imports which helped narrow the deficit, but is also raised speculation that underlying economic demand was weakening. The jobless claims data was also weaker than expected with an increase to 380,000 in the latest week, the highest reading since January.
The US data tended to put downward pressure on US yields while risk appetite was generally solid as equity markets rallied. Although regional Fed President Kocherlakota maintained his stance that interest rates should start to increase this year, the majority of Fed comments remained generally dovish as they were not willing to rule out further quantitative easing if the economy deteriorated.
In this environment, there was weaker underlying demand for the dollar and the Euro was able to convincingly break above 1.3150 with highs just above 1.32. The Euro edged weaker on Friday following the weaker than expected Chinese GDP data and underlying fears surrounding the Euro-zone economy also curbed further buying support.
Source: VantagePoint Intermarket Analysis Software
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Yen
The dollar was unable to make any headway above the 81 level against the yen during Thursday and drifted weaker to the 80.75 area during US trading. The US data was unable to provide any additional yield support for the US currency.
There was a general decline in demand for both currencies as risk appetite was generally firmer during the day. The yen was also hampered by further speculation that the Bank of Japan would move towards additional monetary easing. The latest central bank minutes reported that one member was pushing for additional stimulus which had some negative yen impact.
The currency was also unable to gain significant support from a more cautious attitude towards risk following the Chinese fourth-quarter figure of 8.1% compared to an expected 8.4%. North Korea’s failed rocket launch did not have a major impact.
Sterling
Sterling was able to find solid support close to the 1.59 area against the US dollar on Thursday and pushed generally higher during the day despite worse than expected data.
The trade account registered a GBP8.8bn deficit for February from a revised GBP7.9bn previously as exports declined. Imports held relatively firm which suggested that domestic spending may be resilient and Sterling did not weaken following the data.
There was a solid tone to risk appetite which helped underpin Sterling and there was further speculation over potential defensive inflows from the Euro-zone as underlying doubts surrounding the area persisted. The Euro, however, was able to regain some of the recent losses against the UK currency as Sterling hit tough resistance towards the 0.82 level. The UK currency edged lower on Friday in line with a wider US recovery with a leaked Rightmove report of rising house prices for April not having a major impact.
Swiss franc
The dollar was unable to make significant impression on the franc during Thursday, capped below the 0.92 level, and it retreated towards 0.91 during the New York session. Despite a firmer tone on the crosses, the Euro was unable to make any impression on the franc and was held around 1.2020. There will be unease over potential capital flight into the Swiss currency as Euro-zone tensions intensify again.
There will be caution ahead of the weekend given the possibility that the National Bank could introduce adjust the Euro minimum level while markets are closed.
Source: VantagePoint Intermarket Analysis Software
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Australian dollar
The Australian dollar maintained a firmer tone during Thursday and pushed to highs just short of the 1.0450 level against the US dollar. The currency gained net support from an improvement in global risk appetite and some speculation over a firmer GDP report or a move to lower Chinese reserve ratio requirements.
The weaker than expected Chinese data triggered a reversal in positions and the currency dipped back to below the 1.04 level, although the impact was limited by a firm monetary assessment from Singapore and solid Chinese industrial data. There were no major domestic releases as attention remained fixed on regional developments.
