Yen

The Japanese data recorded a marginal improvement in the PMI index, although it held below the pivotal 50.0 level while there was a further decline in housing starts. The data will maintain a lack of confidence in the economy, although the impact should be limited given that a deterioration in conditions has already been priced in.

Exporter selling persisted while there was still underlying unease over the US economy. Overall sentiment was still firm and the dollar again tested levels above 108.20 in early New York before a retreat following the US data releases.

There was still evidence of yen selling on significant rallies with the dollar finding support close to 107.50 with a move back to 107.90.

Sterling

Sterling again found support below 1.98 against the dollar on Thursday, but encountered strong selling pressure above the 1.99 level in choppy month-end trading.

There will still be serious unease over the UK economic conditions with consumer confidence weakening further to a record -39 from -34 in the latest monthly survey.

The Nationwide survey also recorded a further 1.7% drop in house prices for July to give an 8.1% annual decline, the weakest reading since at least 1992. Recent data will reinforce fears over a slide into recession, especially with energy costs set to rise further.

Serious deterioration within the Euro-zone will continue to provide some important short-term protection to Sterling which again proved resilient against the Euro with a recovery to 0.7865 from lows around 0.7895.

Swiss Franc

The franc tested 2008 lows around 1.6370 against the Euro before consolidating around 1.6340. The dollar found support close to 1.04 against the Swiss currency and pushed back to 1.0470 in New York.

Domestically, consumer prices fell by 0.4% in July, but the annual inflation rate rose to 3.1% which was the highest reading for close to 5 years. The National Bank will remain uneasy over inflation trends, but the franc impact will be limited unless there is a clear warning of higher interest rates.

Underlying demand for the Swiss currency still appears relatively weak and rallies are liable to attract selling pressure as high-yield instruments are targeted.

Source: VantagePoint Intermarket Analysis Software

Australian dollar

The Australian dollar found support above the 0.94 level against the dollar ahead of the domestic data releases on Thursday.

The latest retail sales data was sharply weaker than expected with a 1.0% decline for June from a revised 0.9% increase previously. Credit demand was also weaker which will reinforce fears over the economy and pushed the currency weaker.

The better than expected trade data caused some relief with a AUD400mn surplus for the month, although a recovery in commodity prices and a weaker US currency were more important in allowing a recovery to 0.9450. Commodity price trends will remain a key market focus and a renewed slide pushed the currency back to near 0.94 in US trading.

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