EUR/USD
The Euro was unable to hold above the 1.26 level in European trading on Monday and generally drifted weaker to lows near 1.2530 during the New York session. Trading conditions were relatively subdued with several European markets closed for a holiday and volumes dipped even further later in the day with US markets closed for the Memorial Day holiday.
There was some further relief surrounding Greek opinion polls with increased optimism that the pro-bailout parties would be able to secure a majority in the June 17th election. Although such an outcome would lessen the immediate risk of a forced Euro-zone exit, there were still major fears surrounding the longer-term outlook given the unsustainable economic policies.
The Spanish economy remained a very important focus with particular attention on the banking sector following a EUR 19bn bailout pledge for Bankia. There were uncertainties how the funds would be raised and the government admitted that it would have difficulties funding itself. There were also rumours that other banks would require re-capitalisation. Prime Minister Rajoy called for the European Stability Mechanism (ESM) to be allowed to support the Spanish banks directly.
There was an important overall mood of pessimism surrounding the Spanish outlook and the prospects for the Euro-zone as a whole with the Spanish equity market at a nine-year low. There was a further flow of funds into German bunds on defensive grounds as yields were close to record lows amid expectations that Spain would eventually require a loan-support package. ECB and German policies will be a key short-term focus given their opposition to major policy shifts.
There were no major US developments with the US currency still deriving defensive support from global growth and financial contagion fears. The Euro found some support close to 1.25, with a limited technical rebound.
Source: VantagePoint Intermarket Analysis Software
Call now and you will be provided with FREE recent forecasts
that are up to 86% accurate* 800-732-5407
If you would rather have the recent forecasts sent to you, please go here
Yen
The dollar found support in the 79.35 region against the yen on Monday and edged back to the 79.50 region in very subdued conditions. The US currency was unable to derive any significant yield support during the day with markets also turning cautious ahead of labour-market releases later in the week.
The Japanese economic data was broadly in line with expectations with a 5.8% annual increase in retail sales while there was an increase in the unemployment rate to 4.6% from 4.5%. Regional economic trends will be watched very closely and any evidence of a further deterioration in the Chinese outlook would increase pressure for a weaker yuan which would also increase the potential for yen gains to be resisted on competitiveness grounds.
Sterling
Sterling hit resistance above 1.57 against the dollar and drifted weaker to the 1.5680 area, although it proved broadly resilient. The UK currency maintained a very firm tone against the Euro as it tested resistance levels beyond the important 0.80 level.
Bank of England MPC member Broadbent expressed doubts surrounding the UK economic outlook with comments that the Euro-zone developments were already having a negative impact. He was, however, doubtful whether further quantitative easing would be effective . Although there will be a lively debate within the bank, markets will expect additional quantitative easing if there is further Euro-zone deterioration.
Safe-haven considerations will remain very important for Sterling in the near term and there will be some speculation that defensive demand is fading if UK bond yields do not follow Germany to record lows.
Swiss franc
The dollar found support on dips towards the 0.9330 level against the franc on Monday and rallied during the European session with a peak close to the 0.96 level. The Euro was unable to make any headway above 1.2030 and dipped weaker. The currency settled just below the 1.2020 level and the very narrow range will increase speculation that the National Bank had moved its intervention level higher to discourage capital inflows.
There was further debate surrounding central bank policies with additional speculation that the bank could introduce capital controls to stem upward pressure on the Swiss currency, especially if Euro fears intensify. Major investment banks still expressed doubts whether the SNB policy would prove to be sustainable.
Source: VantagePoint Intermarket Analysis Software
Call now and you will be provided with FREE recent forecasts
that are up to 86% accurate* 800-732-5407
If you would rather have the recent forecasts sent to you, please go here
Australian dollar
The Australian dollar pushed to highs around 0.9880 against the US dollar on Monday and proved slightly more resilient during the day even though it retreated back to test support below 0.9850.
There was additional speculation that China would move to boost fiscal and monetary policy to combat an economic slowdown and this did have some positive impact in boosting risk appetite, although there was still a high degree of caution.
The currency proved broadly resilient during Asian trading on Tuesday with move to a net short speculative position, lessening the risk of position adjustment.
