EUR/US$

The Euro hit selling pressure above the 1.29 level against the dollar on Friday and then weakened steadily through the day with lows near 1.2650. Liquidity levels were lower than normal given the impact of Thursday’s US Thanksgiving holiday which contributed to choppy trading conditions

The Euro was again unsettled by speculation over a devaluation of the Russian rouble while global growth fears were also a negative factor for the currency. There was also evidence of month-end dollar demand with no significant US developments.

The latest Euro-zone consumer prices data recorded a sharp decline in the flash inflation estimate to 2.1% from 3.2% the previous month as energy costs fell sharply while the unemployment rate increased to 7.7% from 7.5%.

The weaker than expected inflation data will reinforce expectations that the ECB will cut interest rates sharply at next week’s council meeting. Market expectations are likely to switch more towards a cut of 0.75% compared with the 0.50% reduction expected earlier this week.

The Euro will remain vulnerable on yield grounds, although there will still be some optimism that the ECB can steer a measured path between near-term recession fears and the medium-term inflation risks.

Source: VantagePoint Intermarket Analysis Software

Yen

The Japanese industrial data remained weak with a 3.1% decline in output for October and fears over the industrial sector are liable to intensify given the downturn in exports. There was also a decline in household spending while the consumer inflation rate slowed sharply.

The unemployment rate fell to 3.7% from 4.0% the previous month, contrary to expectations of a rise, although this appeared to reflect discouraged workers leaving the workforce rather than firm demand for labour.

Sterling

Sterling found support near 0.84 against the Euro on Friday and took advantage of general Euro weakness with gains to near 0.8250 in US trading. The UK currency was unable to make a fresh challenge on the 1.55 resistance level against the dollar, bur resisted substantial selling pressure.

Consumer confidence was little changed according to the latest survey. The latest UK CBI distributive survey recorded a renewed deterioration with a reading of -46 for November from -27 the previous month while retailers were generally pessimistic over near-term prospects which will reinforce fears over the consumer spending outlook.

Speculation of a very aggressive cut may ease slightly and a further cut of at least 0.50% is certainly priced in which should limit Sterling selling, especially with the prospect of further cuts in US and Euro-zone rates. An improvement in risk appetite will also tend to support the UK currency.

Swiss Franc

The dollar found support below the 1.20 level against the US currency on Friday and strengthened to a high of 1.2150 on wider dollar gains. The Swiss franc strengthened back towards 1.54 against the Euro with a retracement following recent sharp losses.

The Swiss economic data maintained the recent negative tone with the KOF leading index weakening to -0.05 for November from a downwardly-revised 0.28 the previous month. This was the first reading below zero for over five years and the rapid deterioration over the past few months will reinforce recession fears.

In this environment, markets will continue to expect further interest rate cuts by the National Bank which will limit franc support.

Source: VantagePoint Intermarket Analysis Software

Australian dollar

The Australian dollar was trapped in relatively narrow ranges during local trading on Friday. The domestic data recorded an increase in private credit which will provide some degree of support, but there will still be expectations of a further interest rate cut next week which will limit Australian dollar support.

The currency will continue to be influenced strongly be global stock market moves and degrees of risk appetite. As the US currency secured wider gains, the Australian dollar weakened back towards the 0.65 region, but it was able to regain ground in New York with a firm tone on the crosses.