EUR/USD
The Euro continued to recover ground during the European session on Wednesday and was eventually able to retest resistance levels above 1.32 against the dollar, although the prime market influence tended to be US weakness rather than Euro strength.
The Euro-zone PMI manufacturing index edged higher in the final reading with Germany a notable gainer. Optimism was tempered by the fact that indices in Greece, Spain and Italy all remained substantially below the 50 threshold. The flash Euro-zone consumer inflation estimate was unchanged at 2.7% for January and markets still expected that the ECB would look to cut interest rates further this quarter.
There was further speculation over an imminent Greek private-sector debt restructuring deal, although again there was no actual announcement of a deal. There was also some relief surrounding Portuguese debt following a satisfactory bill auction, but yields remained close to record highs as confidence remained very fragile.
The US ADP employment report was slightly weaker than expected with a 170,000 increase for January, but there was still a strong two-month increase following a revised 292,000 gain the previous month. The ISM index rose to 54.1 from a revised 53.1 the previous month. Employment and order components were firm. The combination of data will maintain optimism over near-term output trends and also a solid reading for Friday’s key payroll data.
Underlying risk appetite was still strong on hopes of strong liquidity measures by global central banks and this kept the dollar firmly on the defensive on a trade-weighted basis as commodity currencies in particular performed strongly with the Euro consolidating just below 1.32.
Source: VantagePoint Intermarket Analysis Software
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Yen
The dollar was unable to make any headway against the yen during Wednesday and dipped to test support in the 76.0 region before correcting slightly higher. The US currency was able to draw only short-term relief from the US economic data and the rise in bond yields also failed to trigger much buying support.
There were still reservations over pushing the currency sharply below the 76 level given the possibility of intervention even though many institutions were very doubtful whether there would be intervention.
Finance Minister Azumi strengthened his warnings, stating that building speculative moves would not be overlooked, although he also called on the Bank of Japan for additional action which suggests a reluctance to intervene aggressively.
Sterling
Sterling maintained a strong tone against the dollar during Wednesday and pushed to a five-month high above 1.5850 before stalling. UK currency moves are still influenced strongly by trends in risk appetite and a firm global tone helped boost the UK equity market as well as Sterling.
The UK PMI manufacturing data was stronger than expected with an increase to 52.1 for January from a revised 49.7 although confidence was still fragile and the data is likely to have been distorted by favourable weather conditions. The Nationwide house-price index recorded a 0.2% decline for the second consecutive month, maintaining the recent soft tone in the housing sector.
There was still speculation that the Bank of England would move towards additional quantitative easing within the next few weeks and this had some impact in dampening Sterling demand, although the net impact of quantitative easing has been less than expected due in part to aggressive measures from other global central banks to boost liquidity.
Swiss franc
The dollar was unable to hold above the 0.92 level against the franc on Wednesday and retreated again to test support levels around 0.9120. The Euro cross inevitably remained an important focus and, although there were no reports of direct intervention, the Euro managed to strengthen back to the 1.2060 area from lows near 1.2030.
The latest Swiss PMI data was weaker than expected with a decline to 47.3 for January from a revised 49.1 previously which will cause additional concern given that Euro-zone indices were generally stronger for the month. The retail sales data recorded a 0.6% annual increase from 1.8% previously and markets will remain on high alert over potential action from the central bank.
Source: VantagePoint Intermarket Analysis Software
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Australian dollar
The Australian dollar found support above 1.06 against the US currency on Wednesday and moved sharply higher during the European session with a peak around the 1.0750 level. The currency was driven by robust risk appetite as equity markets rallied and by greater interest in high-yield securities.
The building approvals data was weaker than expected with a 1.0% decline following a revised 10.1% increase the previous month while the trade surplus increased to AUD1.71bn from AUD1.34bn previously. The Australian dollar was still being driven primarily by international influences as risk appetite remained firm.
