EUR/US$
The Euro maintained a firm tone in Asian trading on Monday and continued to challenge resistance levels during Europe. The Euro pushed to a 7-week high against the dollar while the US currency also dipped to six-week lows.
The Euro secured an initial boost from a stronger than expected increase in German consumer confidence to the highest level for over 12 months.
The US new home sales was stronger than expected with an increase in annualised sales to 384,000 for June from a revised 346,000 the previous month. There was also a significant decline in inventories over the month which pushed the number of unsold homes down to the lowest level for over 10 years. The sharp decline in inventories will boost optimism that construction will recover over the next few months.
As usual, there was a mixed dollar impact with some degree of optimism over the economy offset by an improvement in risk appetite. The dollar managed to find support at lower levels and was able to recover back towards the 1.4230 region late in the US session. The currency’s resilience in the face of negative sentiment, increased speculative selling and improved risk appetite suggest it may be difficult to push the currency sharply weaker.
Markets will monitor official comments on the dollar closely this week with US Treasury Secretary Geithner due to hold further meetings with Chinese officials while there will be a series of press conferences on Tuesday which could trigger additional volatility.
Source: VantagePoint Intermarket Analysis Software
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Yen
The Nikkei index probed 9-month highs during the session on Monday while regional bourses were also stronger which helped underpin risk appetite and dampened yen demand. While risk appetite remains firmer and commodity prices move higher, there will be the increased potential for Japanese capital flows overseas. Demand for the investment trust launches will also continue to be watched very closely in the short term.
Domestically, corporate services prices fell 3.2% in the year to June which was in line with market expectations. Caution over the domestic growth outlook and deflation fears will maintain a very expansionary monetary policy by the Bank of Japan.
The yen maintained a softer tone during the day with lows beyond 95.20 against the dollar and 136 against the Euro, although there was some limited correction later in the US session.
Sterling
Hometrack reported that UK house prices were steady during July which helped maintain some degree of optimism over trends and also offered Sterling protection The currency held above 1.64 in early Europe on Monday and wider US weakness allowed a challenge on resistance above 1.65.
Sterling also continued to secure support from the wider improvement in international risk appetite.
There are still very serious fears over the economic outlook, especially after Friday’s GDP data, and ratings agency Fitch warned that the recovery signs in the economy were probably not sustainable.
The Bank of England reported that credit conditions had improved during the second quarter, but doubts over bank lending persisted. There is certainly a very important risk that confidence in the economy will deteriorate further over the next few weeks and Sterling stalled above the 1.65 level.
Swiss franc
The dollar was trapped in ranges around the 1.07 level during Monday with resistance near 1.0750 while there was support on dips towards the 1.0650 region. The Euro held above the 1.52 support level against the franc
The Swiss currency will continue to lose some support when there is an improvement in risk appetite.
As ever, markets will remain on high alert over National Bank intervention and wider dollar weakness would substantially increase the risk of franc selling against the US currency by the central bank.
Source: VantagePoint Intermarket Analysis Software
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Australian dollar
The Australian dollar pushed back to challenge resistance levels above the 0.82 level against the US currency in Asian trading on Monday. The currency has continued to secure support from higher commodity prices and improved risk appetite.
Markets will want to maintain an optimistic tone in the short term and will continue to buy the currency strongly on dips. There was a peak above the 0.8250 level before the advance stalled. There is still the potential for Reserve Bank Australian dollar selling which will tend to cap gains for the local currency even if the optimistic tone is sustained.
