The Euro was able to resist a further test of support below the 1.39 level on Tuesday and consolidated with a slightly firmer bias following the sharp losses seen over the previous few sessions. There was pressure for a correction after the losses and there were also some reports of institutional Euro buying at lower levels which also helped improved the Euro’s tone.
The US data was slightly stronger than expected with pending home sales securing a small monthly recovery following sharp losses the previous month. The data helped maintain the slightly more optimistic tone surrounding the US economy, but also helped underpin risk appetite. The Euro tends to gain some support in these circumstances as defensive dollar support eases, but there will also be some potential net equity flows into US capital markets which will tend to underpin the dollar.
US Treasury Secretary Geithner repeated his support for a strong dollar policy, but this failed to have a significant impact.
Overall sentiment surrounding the Euro-zone remains weak with lacklustre economic data and persistent structural vulnerabilities. There will be further concerns surrounding the Greek budget situation which will continue to limit Euro support selling pressure could return quickly.
The Euro edged higher to the 1.3970 region, but was not able to make a challenge on the 1.40 area during the day.
The dollar found support close to the 90 level against the yen during Tuesday, although it was unable to make much headway. Risk appetite was generally firmer during the day which helped lessen defensive demand for the Japanese currency.
There is still a lack of confidence in the Euro and persistent unease over the underlying US fundamental vulnerabilities. There will also be further speculation over a slowdown in the Chinese economy on continuing monetary tightening. In this environment, there will be further reservations over a policy of aggressive yen selling which should provide important protection to the currency.
The dollar consolidated around the 90.40 region as conviction over trends remained relatively low.
Sterling found further support below the 1.59 area against the US dollar on Tuesday and moved higher to test the 1.60 level while the Euro hit resistance close to 0.8750. There was still some evidence of commercial Euro buying, but it was much less of a feature than the previous day.
The headline UK data offered some support to Sterling with a rise in the Nationwide consumer confidence index while there was also an improvement in the construction PMI index. Nevertheless, it remained trapped below the 50 level and there was also evidence that the consumer sector was still brittle with greater caution over spending.
There will be further caution ahead of Thursday’s Bank of England interest rate decision with some speculation over further quantitative easing tending to be a negative influence on the currency. Government debt worries will also be heightened by political uncertainty. There have been forecasts that the government borrowing targets will be exceeded and there will also be speculation over an indecisive election result later in 2010 which could delay additional fiscal measures.
The dollar was unable to regain the 1.06 level during Tuesday and retreated to test support below 1.0550 as buying momentum faded. The Euro was able to consolidate above 1.47 against the Swiss franc during the day.
The suggestions of intervention to weaken the franc at the end of last week has had an important impact in deterring franc buying and this has also been important in underpinning the Euro.
The Euro will find it much more difficult to make strong headway given the structural fears surrounding the Euro-zone economy and the franc could still prove to be resilient.
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After falling very sharply following the Reserve Bank interest rate decision, the Australian dollar found support below the 0.88 level against the US currency and moved higher to a peak around 0.8880 with an improvement in international risk appetite helping to underpin confidence.
The domestic data was weaker than expected with the services-sector PMI index dipping to below the pivotal 50 level in the latest release. With continuing fears over a slowdown in the Chinese economy, it will be difficult for the Australian currency to make strong headway.