EUR/US$
After initially failed to hold gains on
Tuesday and weakening back to 1.3680, the dollar strengthened to
1.3610 later in US trading as a sharp Wall Street fall triggered
defensive US currency demand.
US consumer confidence
fell to 105.0 in August from a revised 111.9 the previous month
as the employment market was less robust and this was the lowest
figure since September. Underlying fears over the housing sector
will continue with prices recording a 3.2% annual decline in the
year to June according to the latest Standard & Poor’s survey.
Minutes from the August 7th
meeting confirmed that the FOMC was more concerned over the
growth outlook and credit risks. The Fed also stated that action
may be required if the financial-market rout continued. The
impact should be limited as futures markets have already priced
in interest rate cuts of at least 0.75% by the end of 2007.
Underlying credit stresses will maintain some safe-haven dollar
buying.
On Monday, ECB President
Trichet stated that his August comments over the need for strong
vigilance over inflation preceded market volatility. The remarks
will continue to dampen expectations over a September interest
rate increase, especially as ECB officials generally appear to
be taking a slightly softer stance.
Speculation over a reduced
commitment towards a rate hike will curb Euro sentiment in the
short term. The German IFO index weakened to 105.8 in August
from 106.4, although the decline was less than expected which
will ease fears over a sharp economic deterioration.
Source:
VantagePoint Intermarket Analysis Software
The Japanese yen found support close to 115.80 on
Tuesday and strengthened to test level below the 114.50 level in US
trading while the Japanese currency also tested levels beyond 157.0
against the Euro. Yen moves have remained correlated strongly with
global stock price movements and Wall Street weakness helped
strengthen the Japanese currency.
There have been significant cabinet changes
within the government. New Cabinet Secretary Yosano has previously
had a strong relationship with Bank of Japan officials which will
make it easier for the central bank to push ahead with an interest
rate increase. In contrast, the appointment of Nukaga as Finance
Minister will tend to increase government opposition to a strong yen
and could create significant internal friction if the currency
strengthens sharply.
Sterling
Sterling was unable to sustain a recovery back
above 2.01 against the dollar on Tuesday and weakened back to below
2.0050 in US trading while finding support weaker than 0.68 against
the Euro. The UK currency will continue to be influenced strongly by
risk aversion levels and a renewed drop in stock market prices
pushed Sterling weaker.
The latest BBA data recorded a decline in
mortgage approvals to 67,000 in July from 75,300 in June which will
reinforce expectations of a gradual slowdown in the housing sector,
although there was only a small annual decline.
There will also be fears over a more serious
slowdown given the combination of tighter lending standards and an
over-stretched consumer sector. The housing-related data will
continue to be monitored closely and weak survey evidence would
undermine Sterling.
Swiss franc
The Swiss currency again found support weaker
than 1.64 against the Euro on Tuesday and strengthened back to
1.6350 while the franc continued to probe resistance levels below
the 1.20 level against the dollar. Currency moves will continue to
be correlated strongly with stock market moves and Wall Street
losses helped trigger franc gains in US trading.
The UBS consumption indicator edged weaker to
2.26 in July from 2.31, although this was still at an historically
high level and still suggests robust consumer spending growth. The
KOF index will be watched closely on Wednesday and any figure near
or above the July level of 2.13 would maintain confidence in the
economy.
Australian dollar
The Australian dollar strengthened to highs above
the 0.83 level against the US dollar on Monday before weakening in
choppy trading on Tuesday. The Reserve Bank of Australia stated that
credit conditions were improving, but markets are still very
cautious with risk tolerances tending to decline and Wall Street
losses pushed the currency below the 0.82 level in US trading.
Although the domestic influences have remained
limited, the retail sales data will be watched closely at the end of
this week for evidence on domestic demand and a robust figure would
underpin confidence.
Source:
VantagePoint Intermarket Analysis Software
