EUR/USD
The Euro was unable to make any headway ahead of the key US employment release on Friday as resistance levels above 1.24 remained intact. There were further important stresses within the peripheral bond markets as Spanish benchmark bond yields moved higher again. Yields on 10-year bonds again pushed to just above 7.0%, returning to levels seen ahead of the EU Summit.
There were further indications that direct ESM funding for the Spanish banks, a key element of the Summit deal, would not be available until at least 2013 and the ESM itself is still not operational given ratification delays.
There was a further setback for the Euro as the Finnish Finance Minister suggested that Finland could, in extreme circumstances, decide to leave the Euro area as an alternative to providing further support for weaker economies. The government was quick to play down the reports and deny that Finland would consider leaving the Euro-zone, but there was still significant damage to the currency. Finland and the Netherlands are also seeking collateral for any additional funds to Spain. The Eurogroup meeting will be watched very closely on Monday and further dissent at the meeting would undermine currency demand.
The latest US employment data was again weaker than expected with a headline payrolls increase of 80,000 for June after a revised 77,000 increase for May as the unemployment rate held steady at 8.2%. There was a surprise dip in retail jobs and the report overall increased speculation that the Federal Reserve could move to additional quantitative easing at the next policy meeting.
The Euro was unable to secure any sustained support from the US data and retreated to test 2012 lows below 1.23 as the dollar gained from a renewed deterioration in risk appetite. There was a dip to lows just below 1.2260 before a slight recovery later in the Asian session on Monday.
Source: VantagePoint Intermarket Analysis Software
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Yen
The dollar was blocked below the 80 level ahead of the US employment report on Friday and then dipped sharply following the weaker than expected release. The dollar was undermined by a lack of yield support as US Treasury yields retreated to re-test 2012 lows. The Japanese currency also gained defensive support as equity markets were subjected to renewed selling pressure.
The latest core machinery orders data recorded a much sharper than expected 14.8% decline for June and the measures of consumer confidence were weaker than expected which will increase unease surrounding the Japanese economy and also increase pressure for yen gains to be resisted. Comments from Japanese officials will be watched very closely given the possibility of intervention and pressure for additional action at this week’s policy meeting.
The conflicting pressures on the yen were illustrated by highs beyond 79.40 against the dollar on global concerns before a retreat to 79.75 after the weak domestic data.
Sterling
Sterling found support in the 1.55 region against the US dollar on Friday, but stalled close to 1.5550 as the US currency retained underlying strength. The UK currency weakened following the US employment data and tested levels near 1.5460. Losses were cushioned by a renewed advance against the Euro as Sterling pushed to highs near 0.7930.
There was further evidence of dual influences on the currency. Confidence in the UK economy remained generally weak, especially after downbeat comments from the Bank of England at Thursday’s MPC meeting. There were expectations that the economy had contracted again for the second quarter, increasing pressure on the Bank of England and government.
In contrast, Sterling continued to gain defensive support from Euro-zone vulnerability with net capital inflows and possible central-bank reserve purchases. The UK currency consolidated just below 1.55 against the dollar in Asian trading on Monday.
Swiss franc
The dollar found support just below the 0.97 level against the franc on Friday and pushed to highs near 0.98 before stalling as the Euro remained locked close to 1.2010.
The latest National Bank data recorded a sharp increase in currency reserves to CHF364.9bn for June from CHF305.9bn previously. The strong increase illustrates the extent to which the central bank has been forced to intervene to prevent a break of the 1.20 Euro minimum level and also illustrates the potential dangers of such a policy which will fuel market speculation over an eventual break. A change in methodology pushed Swiss unemployment to 2.9% for June from 3.2%.
Source: VantagePoint Intermarket Analysis Software
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Australian dollar
The Australian dollar hit resistance on moves towards 1.0280 against the US currency on Friday and retreated sharply following the US payroll data. There was a retreat to lows around 1.0180 as equity markets retreated and global growth doubts were given fresh ammunition.
Caution continued to prevail in Asia on Monday with the currency finding further support in the 1.0180 region on speculation that lower than expected Chinese inflation data would spur the PBOC into further policy easing.
