EUR/USD
The Euro rallied back to the 1.2950 area against the dollar during Friday, but gains remained generally unconvincing as underlying sentiment remained negative.
There were further negotiations surrounding a new Greek government during the day as PASOK leader Venizelos attempted to form a coalition and there were also some reports that the New Democracy party was also close to securing a deal with the Democratic Left Party which briefly pushed the Euro higher.
In the event, there was no agreement to form a government as SYRIZA refused to join an administration and the President held emergency talks over the weekend in an attempt to form a national unity government and maintain Greece within the Euro.
There were further reports that Germany was prepared to let Greece leave the Euro area as the underlying brinkmanship within Europe continued. The lack of a resolution to the impasse and fears over the implications if Greece left the Euro had an important negative impact. There were also fears surrounding the Spanish banking sector with doubts whether the government recapitalisation plans would be sufficient to underpin the sector. The German government also lost an important state election in North Rhine Westphalia which increased domestic political pressure and will increase wider policy uncertainty.
The US University of Michigan consumer confidence index increased to 77.8 for May from 76.4 previously which was the highest level since early 2008. There was optimism that the consumer sector would continue to underpin the economy as a whole. The producer prices data did not have a major impact.
The Euro retreated to 3-month lows near 1.29 and dipped below this level in early Asia on Monday with Greek government talks set to resume during Monday and the ECB will also be under close scrutiny during the day.
Source: VantagePoint Intermarket Analysis Software
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Yen
The dollar held support in the 79.70 area during Friday and edged towards the 80 level following the US data, but underlying support on the crosses made it difficult for the US currency to gain momentum.
Risk appetite was undermined by weaker than expected Chinese retail sales and industrial output data with weakness in China and India over the past few days increasing unease surrounding the global economy. China did announce a reduction in the Reserve Requirement ratio to 18% which had some impact in underpinning risk appetite.
Valuation issues remained important for the Finance Ministry and Prime Minister Noda warned that all options were on the table for dealing with a strong yen. The dollar nudged above the 80 level, although momentum was still lacking.
Sterling
Sterling hit resistance in the 1.6120 area against the dollar on Friday and dipped weaker during the day with lows below 1.6080 on wider US gains. The UK currency was also unable to make another serious attempt at breaking through the 0.80 level against the Euro.
There was mixed producer prices data which did not have a decisive impact on the currency. The ONS stated that there had been a downward revision to the first-quarter construction output estimate. This confounded markets, especially as there were strong suspicions on the initial releases that the data was actually stronger than reported. The risk of a downward revision to the overall GDP data had a significant negative impact on sentiment.
A wider deterioration in risk appetite also had some negative impact on Sterling. Markets were cautious ahead of the Bank of England quarterly inflation report on Wednesday. Sterling tested support close to 1.6050 on Monday with relatively narrow ranges.
Swiss franc
The dollar found solid support on dips towards 0.9260 against the franc and pushed to highs near 0.93 ahead of the New York close. The Euro dipped to test support below 1.2010 as the National Bank’s resolve was tested again as it was unable to move away from the minimum level.
Continuing fear surrounding Greece and the Euro-zone outlook maintained underlying upward pressure on the Swiss currency with further defensive inflows. Comments from National Bank head Jordan will be under close scrutiny on Monday for any evidence of more radical measures to weaken the Swiss currency.
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Australian dollar
The Australian dollar was able to recover aback towards 1.0070 against the US currency during Friday, but the advance lacked conviction and it retreated again later in the US session with fresh 2012 lows early in Asia on Monday. There were further concerns surrounding the domestic growth outlook which undermined the local currency.
The currency was undermined by persistent doubts surrounding global growth conditions, especially after the latest Chinese data, with general risk aversion also having a damaging impact. The Chinese Reserve Requirement Ratio cut had some beneficial impact in underpinning risk appetite and there was some degree of Australian dollar support just below the parity level.
