EUR/US$
After suffering losses in Asian trading on Monday, the dollar recovered back to the 1.42 region in early Europe, but was unable to sustain the gains and weakened back to lows around 1.4350 ahead of the New York open as underlying sentiment remained weak.
The Euro-zone PMI index for the manufacturing sector was revised up slightly which maintained the sense of optimism towards the Euro-zone and global economy. This was also instrumental in supporting risk appetite which underpinned Euro demand.
The US ISM manufacturing index was stronger than expected with an increase to 48.9 for July from 44.8 the previous month. The orders component continued to improve and the pace of job cutting also slowed sharply over the month which will reinforce optimism over a further recovery in the manufacturing sector. There will also be expectations of a wider improvement in the economy.
The data also had a further positive impact on risk appetite with Wall Street looking to challenge 9-month highs and defensive demand for the dollar was weaker. In this environment, markets continued to push the US currency weaker with lows near 1.4450 before a weak corrective recovery.
There will be some speculation that European central banks will discourage further currency gains and look to underpin the US dollar, especially given the need to support exporters. In this context, official comments on the dollar will be watched very closely over the next few days.
Source: VantagePoint Intermarket Analysis Software
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Yen
There was a further reported recovery in the latest Chinese PMI data over the weekend which helped maintain optimism towards the regional and global economies. Overall risk appetite was firmer which lessened demand for the Japanese currency.
The yen was still proving to be broadly resilient as the Nikkei index failed to sustain 10-month highs while the dollar was unable to move back above the 95 level. There was still some evidence of Japanese institutions repatriating European earnings which provided some degree of yen protection.
Nevertheless, as risk appetite improved and there was a further shift into high-yield currencies, the yen was subjected to further selling pressure with lows around 95.40 against the dollar while the Japanese yen also weakened to Euro lows around 137.50.
Sterling
Sterling maintained a firm tone in early Europe on Monday, resisting losses significantly below 1.67 against the dollar. Results from the banking sector were generally encouraging which provided underlying support to the UK currency.
The manufacturing PMI data was stronger than expected with an increase to 50.8 in July from 47.4 previously. This was the strongest reading and the first above the pivotal 50.0 level since March 2008 which will reinforce near-term optimism over the economy.
Attention will also tend to focus on the Bank of England this week with the central bank due to review the quantitative easing process and whether to expand the programme. Following the recent favourable data releases, there will be reduced speculation that the bank will move to buy additional bonds and this should also provide some degree of near-term Sterling support.
As the dollar came under renewed selling pressure, Sterling strengthened to a 10-month high near 1.70 before a correction weaker to 1.6925. Sterling also tested levels beyond 0.85 against the Euro.
Swiss franc
The dollar was unable to make any impression on the franc on Monday and weakened to lows near 1.0565 in US trading.
The Swiss PMI index was firmer than expected with an increase to 44.3 for July from 41.8 the previous month, but the data was no better than that achieved in other major economies which curbed any positive franc impact.
Although there was no evidence of any direct National Bank intervention during the day, markets will remain on high alert over the situation, especially with the US dollar challenging lows seen during June. In this context, volatility levels are liable to increase.
Source: VantagePoint Intermarket Analysis Software
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Australian dollar
The Australian dollar pushed to highs near the 0.84 level against the US currency in late US trading on Friday. There was some correction late in Asian trading but retreats are still attracting firm buying support. Markets will want to maintain a positive stance in the short term and dips will continue to attract strong support, especially with increased confidence in the global economy.
The Australian dollar was ale to strengthen to highs around 0.8440, although it did tend to underperform the Euro during the US session. There will be further speculation over Reserve Bank currency selling at prevailing levels.
