EUR/USD
The Euro maintained a firmer tone in early Europe on Monday as French President Sarkozy pledged support for Greece. The Euro also gained some support from generally firm global risk appetite.
The Euro-zone economic data was mixed with the Sentix business confidence index slightly stronger than expected for March while the increase in German industrial orders was slightly lower than expected and the overall market impact was limited.
During the day, risk appetite failed to sustain the initial optimism which hampered the Euro. The deterioration was triggered in part by comments from the Greek prime Minister that the fiscal crisis could spread to beyond Europe which reminded markets of the risks to several international sovereign ratings. These comments also revived specific fears over the Euro-zone economy and there were further credit-rating downgradings for Portugal’s main banks.
There were no major US economic data releases during the day with the dollar able to maintain, but not extend its current yield advantage over the Euro. Any comments from Fed officials will be monitored closely, but there are no major data releases over the next 48 hours.
The Euro dipped to lows close to 1.36 against the dollar during the US session before stabilising around 1.3625 and a lack of releases may sustain the period of consolidation.
Source: VantagePoint Intermarket Analysis Software
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Yen
The yen initially maintained a weaker tone on Monday as risk appetite was generally firm during the Asian session. Comments from Chinese senior officials during the weekend increased speculation that there would be a shift in exchange rate policy to allow renewed yuan appreciation against the dollar, but this did not have a substantial impact on the Japanese currency.
The dollar hit resistance above the 90.50 level as exporter selling started to increase while there is also some potential for capital repatriation ahead of the fiscal year-end if the yen continues to weaken.
The yen was able to resist further losses during Monday as risk appetite was generally weaker and the US currency edged lower, although it held above the 90 level.
Sterling
The UK currency tends to gain some support from any general improvement in global risk appetite and it held above 1.51 against the dollar during Asian trading on Monday.
Political uncertainty remained an important factor holding back the currency with the latest opinion poll still pointing to the risk of an indecisive outcome. There will be continuing fears that political factors will prevent any significant short-term corrective action on the budget deficit.
Bank of England MPC member Barker stated that the economic recovery was on track, but that it was still a bumpy process. There will be uncertainty over the Bank of England’s policies which will tend to deter strong Sterling buying support, especially as there is still a suspicion that the bank could decide on further quantitative easing within the next few months.
Underlying confidence in the debt position will also remain weak and Sterling dipped to lows around 1.5030 against the dollar before rebounding slightly while the Euro found support close to the 0.90 level against the UK currency.
Swiss franc
The dollar found support below 1.0680 against the Swiss franc on Monday and hit resistance close to 1.0750 later in the US session. Swiss retail sales rose 4.4% in the year to January which maintained a generally firm tone for recent economic data.
The Euro was unable to make any headway and was locked close to 1.4630 against the Swiss currency during the day. There will be some speculation that the National Bank will take a less aggressive stance on intervention following Thursday’s policy meeting and this is likely to underpin the franc in the near term.
Source: VantagePoint Intermarket Analysis Software
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Australian dollar
There was a further Australian dollar advance to 0.9125 against the US dollar on Monday with international risk appetite generally robust while commodity prices were also firm.
The currency edged back to just below 0.91 during New York trading as risk confidence was less robust, but there was still evidence of firm buying support on dips which limited losses as underlying sentiment towards the economy remained strong.
