EUR/US$
The dollar was unable to make any headway in Asian trading on Monday and remained on the defensive throughout the day. The US currency weakened to lows near 1.4250 which was a six-week low against the Euro.
There was relief over a US$3bn support package for US lending group CIT and this provided a significant boost to risk appetite which also dampened demand for the US currency.
There was little in the way of US economic data, but there was a further 0.7% increase in leading indicators for June which maintained the mood of cautious optimism towards the US economy. For now, positive developments are still tending to weaken the dollar on improving risk appetite, although it is possible that sentiment will start to shift in favour of the dollar, especially if there is any speculation over higher interest rates. It is also the case that there are still very important risks to the US economy and confidence cold still stumble relatively quickly which could trigger renewed defensive support.
Currency markets generally have been trapped within relatively narrow ranges over the past few weeks. In this environment, institutional investors will be looking to target a breakout and secure a substantial move. This pressure could increase the potential for increased dollar selling as players look to push the currency weaker, although thee attempts could prove to be frustrated given a lack of confidence in the underlying Euro-zone fundamentals.
Source: VantagePoint Intermarket Analysis Software
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Yen
Trends in global risk appetite continued to dominate on Monday with the yen generally weaker as confidence improved. Asian equity markets strengthened to 2009 highs.
The yen weakened to beyond 94.50 against the dollar and also depreciated to 134 against the Euro. The latest market positioning data recorded an increase in speculative long yen positions which could increase the risk of stop-loss yen selling.
From lows near 94.80, the yen still proved to be broadly resilient against the dollar with a move back towards 94.20 in New York while the Euro hit tough resistance above the 134 area.
Sterling
The Rightmove organisation recorded a 0.6% increase in house prices for June which maintained a sense of optimism towards the UK housing sector and bolstered the currency even though the direct impact of the data was limited.
Sterling continued to gain support from the improvement in risk appetite during the day. With the US currency on the defensive, Sterling pushed to highs above 1.6550 against the dollar while the UK currency consolidated slightly stronger near 0.86 against the Euro.
Bank of England Deputy Governor Bean stated on Monday that the period of unusually low interest rates should be kept as short as possible which also provided some underlying support for the UK currency on speculation that the bank would look for an early opportunity to tighten policy.
There are still very important risks surrounding the UK debt situation and only a small shift in sentiment could trigger a sharp downward adjustment in the UK currency.
Swiss franc
The dollar was unable to make any headway against the franc on Monday and dipped to lows near the 1.0650 level, in line with general weakness against the European currency pairs. The Euro edged stronger back towards the 1.52 region against the Swiss currency.
The latest speculative positioning evidence suggests that markets are increasingly reluctant to hold long franc positions given the threat of intervention.
Paradoxically, this will make it less likely that any bank intervention will trigger substantial franc selling. Nevertheless, the central bank threat will remain an extremely important barrier to franc appreciation.
Source: VantagePoint Intermarket Analysis Software
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Australian dollar
The domestic data recoded a sharper than expected decline in producer prices, but the impact was limited as global risk continued to dominate. Reports of the CIT deal boosted confidence and this helped push the Australian currency higher with a move to the 0.8120 region against the US dollar in Europe on Monday.
Confidence remained firmer during the day with a peak close to 0.8180 against the US currency and markets will want to push the Australian dollar stronger, although resistance levels could still prove very difficult to break down, especially if risk appetite starts to deteriorate again.
