EUR/US$
After a challenge on 1.40 in early Europe on Tuesday, the Euro dipped after a weaker than expected German business confidence survey with the ZEW index falling to 39.5 for July from 44.8 the previous month. This was the first monthly decline sine October and, although the data is still substantially higher than in late 2008, the decline will tend to reinforce fears that the Euro-zone economy will not be able to secure a convincing recovery.
The US retail sales data failed to have a substantial impact as it was close to expectations. Headline sales rose 0.6% in June after a 0.5% increase the previous month while there was a 0.3% underlying increase in sales. Overall confidence in the economy will still be fragile and the latest IBD consumer confidence index also recorded a monthly decline.
The producer prices data was stronger than expected with a 1.8% monthly increase while core prices rose 0.5% and Treasury yields edged higher following the data. In this context, the consumer inflation data could trigger additional volatility on Wednesday.
US Treasury Geithner looked to promote a strong dollar in public comments as markets continue to fret over the risk of long-term diversification away from the US currency.
The Euro again looked to challenge 1.40 after the US data with risk appetite supported by stronger than expected second-quarter earnings from Goldman Sachs. The currency was still unable to make any headway above this level and dipped to lows near 1.3910 in New York as European currencies in general came under selling pressure before rallying back to 1.3960.
Source: VantagePoint Intermarket Analysis Software
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Yen
Asian equity markets were resilient on Tuesday which curbed immediate yen demand, but confidence is still liable to be very fragile.
The Bank of Japan is unlikely to adjust interest rates at Wednesday’s policy meeting. There will be pressure for the bank to extend the quantitative easing and this may weaken the yen slightly, although global risk conditions will still tend to dominate and the Japanese currency weakened to the 93.20 region on Tuesday.
The dollar fluctuated around the 93 level in Europe with the US currency unable to make a challenge on significant resistance levels before pushing to 93.60 following better than expected results from Intel.
Sterling
The economic data released overnight on Tuesday was stronger than expected with an annual increase in retail sales according to the latest BRC survey. The RICS housing-market survey also strengthened to a 21-month high as 18.1% of respondents reported falling prices compared with 43.9% the previous month. The firm data helped Sterling hold above the 1.62 level against the dollar in early European trading with a push towards 1.63.
The headline UK inflation rate fell to 1.8% in June from 2.2% previously which was in line with market expectations while the retail prices index fell 1.6% over the year. The data is liable to increase speculation that the Bank of England could move to expand the quantitative easing. The UK currency still proved resilient and consolidated above 1.63 in New York with the Euro unable to regain the 0.86 level.
The latest labour-market data will be watched very closely on Wednesday and is liable to have a greater impact on currency sentiment, especially if there is a higher than expected rise in the claimant count.
Swiss franc
The dollar again found support close to 1.08 against the franc on Tuesday and strengthened significantly in US trading with a push to higher above 1.0920. The franc dipped sharply against the Euro with losses to beyond 1.52 later in US trading.
Markets will continue to suspect that the National Bank is helping to push the currency weaker and taking the opportunity to enhance any underlying selling orders, although there was no convincing evidence of intervention by the central bank during Tuesday.
Source: VantagePoint Intermarket Analysis Software
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Australian dollar
The Australian dollar found strong support close to the 0.77 level against the US currency on Monday and was able to rally strongly with gains to above the 0.7850 level on Tuesday. The Australian currency gained support as risk appetite improved and there was a general reversal for the US currency.
The domestic data recorded a recovery in business confidence, although international trends will tend to remain dominant for now. The Australian currency pushed to a high near 0.7920 and regained this level later in the US session following a temporary retreat.
