EUR/USD
The Euro maintained a strong tone early in the European session on Friday and peaked just above the 1.3280 area before retreating. Underlying ranges remained narrow at the lowest level for around 4 years.
There were further concerns surrounding the Spanish economic situation which dampened Euro support amid fears that the economy was sliding towards a sovereign-debt crisis and a potential bailout. There was a further increase in benchmark Spanish yields which helped undermine sentiment. There was continuing discussion surrounding the Euro-zone firewall and signs that the German government would back down and permit combined use of the EFSF and ESM funds later in 2012.
US new home sales weaker than expected with a dip to 313,000 for February from a revised 318,000 previously. The economic data may not have a decisive impact over the forthcoming week, but the consumer confidence reading will be watched closely, especially as the index peaked in February 2011 before sliding over the remainder of the year and markets remain nervous over a potentially similar trend this year.
The dollar was finding it more difficult to gain support on defensive grounds and the Euro rallied back towards the 1.3280 region. Over the weekend, there was further criticism of the Spanish debt plans which maintained unease over the situation with a General Strike due to be called on Thursday.
The latest IMM positioning data recorded a sharp drop in the net long US dollar position which will lessen the potential for further positioning adjustment and may offer some US protection. There was limited movement in Asia on Monday with the Euro again hitting resistance just above the 1.3280 area.
Source: VantagePoint Intermarket Analysis Software
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Yen
The dollar was unable to push above resistance in the 82.80 region on Friday and weakened steadily to lows close to the 82 level during the US session. The US data provided no help for the US currency, but there was buying support close to 82 with a recovery back towards 82.50.
There will be potential capital repatriation ahead of the fiscal year end which will certainly trigger some reservations over aggressive yen selling during the forthcoming week. There will also be underlying yen support if regional growth fears intensify.
There was only limited evidence of yen support in Asia on Monday and the currency was undermined by speculation over a flow of funds into investment trusts with the dollar moving higher and the Euro rallied to the 109.50 region.
Sterling
After spiking higher to the 1.59 area against the US dollar in Europe on Friday, Sterling retreated sharply to the 1.5825 area even though underlying ranges were narrow.
The latest BBA mortgage lending data was weaker than expected with a decline to just above 33,000 in February from 38,000 previously as the market was undermined by the forthcoming ending of tax reliefs. There will be further unease over potential lending constraints by commercial banks which will further dampen the outlook for consumer spending.
There was no serious test of support levels and the UK currency rallied again later in the US session. Bank of England MPC member Weale stated that he was more optimistic surrounding the UK economic outlook which maintained the impression that he would not back further quantitative easing at this stage. Uncertainty remained high, especially after the dovish MPC minutes earlier in the week. Sterling again hit resistance towards 1.5880 and drifted lower on Monday as the Euro held just above 0.8350.
Swiss franc
The dollar found support in the 0.075 region against the franc on Friday, but rallies were capped not far above 0.91 and the US currency drifted weaker. The Euro was unable to make any impression and indeed edged slightly weaker to test support below the important 1.2050 level.
A stronger reading for the Swiss trade account will provide some degree of franc support and the currency could also gain fresh defensive support if fears surrounding the Spanish situation intensify which would put fresh pressure on the National Bank to intervene aggressively.
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Australian dollar
The Australian dollar found support on fresh dips to below 1.04 against the US currency on Friday and advanced again during the New York session with a peak above 1.0450. Technical trading was an important influence as markets attempted to trigger stop-loss US selling above resistance levels.
There was still caution surrounding the Underlying Australian and regional economic outlook which curbed currency support. Asian equity markets remained generally weaker during Asian trading on Monday which had a negative impact on the Australian dollar and from a high near 1.05, the currency retreated back towards the 1.0450 area.
