EUR/USD
The Euro was unable to make a fresh challenge on resistance above the 1.23 level in European trading on Monday and drifted slightly weaker, although ranges were generally narrow as caution prevailed ahead of key events later in the week with support on dips towards 1.2225.
The Euro remained vulnerable on the crosses as it dipped to record lows against the Australian dollar and also lost some ground against the yen following a sharp recovery late last week.
The latest Euro-zone industrial confidence indicator deteriorated further for July and there was a Spanish GDP decline of 0.4% for the second quarter, maintaining fears over a deepening recession. There were further concerns surrounding the underlying Spanish outlook with expectations of rising domestic protests. There was a small decline in yields at the latest Italian bond auction as market costs remained lower, although the market impact was measured.
The main focus continued to be on this week’s ECB meeting amid expectations that the central bank would push for more aggressive measures to underpin the Euro-zone, potentially including a restarting of the SMP and promises of further cuts in interest rates. The latest weekly data confirmed that the bank had not bought peripheral bonds for the 20th successive week. German Finance Minister Schauble met with US Treasury Secretary Geithner to discuss the Euro-zone situation with markets maintaining a very close watch on the internal German debate. Markets were also on high alert for comments from the Bundesbank ahead of Thursday’s policy meeting.
There were no major US developments ahead of the Federal Reserve meeting which starts on Tuesday and the Euro was able to nudge higher in Asia on Tuesday as underlying defensive dollar demand eased slightly.
Source: VantagePoint Intermarket Analysis Software
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Yen
The dollar was unable to make any headway against the yen on Monday and dipped to test levels near 78.10. technical considerations proved important with evidence of stop-loss selling in the Euro/yen cross pushing the Japanese currency stronger.
There was further speculation of potential intervention to weaken the yen if it made any further advance against the dollar.
There was a decline in Japanese unemployment for the month, butt he household spending increase was slightly lower than expected and the PMI manufacturing index was slightly lower at 47.9 from 49.9 previously, maintaining doubts over the underlying outlook. An improvement in risk appetite pushed the dollar slightly higher to the 78.25 area in Asian trading.
Sterling
Sterling hit resistance in the 1.5720 region against the US dollar on Monday and dipped to lows below 1.5680, although ranges were significantly narrower during the day.
The latest consumer credit data was weaker than expected with a subdued reading for consumer lending over the month and a drop in mortgage lending. There was also a sharp decline in money supply for June which will increase Bank of England fears over the outlook. The CBI retail sales survey recorded a sharp slowdown for the month following an elevated reading previously while consumer confidence was unchanged at -29 for the month.
The data will also maintain pressure for the Bank of England to take further additional measures to support the economy with further market speculation that the central bank could cut interest rates. Sterling consolidated just above 1.57 against the dollar in Asian trading on Tuesday with the Euro finding support below 0.78.
Swiss franc
The dollar found support on any decline to below 0.9870 against the franc on Monday while there was resistance above the 0.9820 area in generally subdued conditions as the Euro was unable to make any movement against the Swiss currency.
The ECB policy moves will be watched extremely closely in the short term and any further measures to lower Euro borrowing costs could trigger additional capital flows into the Swiss currency. The National Bank report will be watched closely to assess whether underlying strains are increasing.
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Australian dollar
The Australian dollar found support on dips towards the 1.0150 level on Monday and pushed to challenge resistance above the 1.05 level. There were expectations that global central banks would take action to underpin the economy which helped underpin risk appetite and also supported the Australian currency during the day.
The building approvals data was stronger than expected with a 2.5% correction from the revised 27% increase previously which also had a positive impact on the currency and it pushed to fresh four-month highs above the 1.0520 level against the US currency.
