The Euro found support below the 1.29 level against the dollar on Monday and then secured a firmer tone during the day.

The German trade surplus weakened for December, but the monthly decline in exports was slightly lower than expected at 3.7% and, following very weak industrial data from Germany last week, this triggered relief for the Euro. The Russian rouble also maintained a more stable tone as commodity prices looked to rally which also provided some degree of Euro support.

There were no significant US data releases with attention focussed firmly on developments surrounding the fiscal and banking sectors. The dollar gained some initial defensive support on the announcements that the financial proposals would be delayed until Tuesday, but there was still confidence that the very weak employment data would force Congress to reach agreement on the stimulus.

Markets will continue to monitor developments closely on Tuesday and the comments from Fed Chairman Bernanke will also be very important for market sentiment. In particular, the comments on potential Fed buying of long-term securities will have a significant impact on Treasury-market and US dollar sentiment. Hints that the Fed is moving close to intervention would tend to weaken the US currency.

The Euro pushed to highs around 1.3090, but the inability to break resistance levels, allied with a subdued tone on Wall Street, pushed the Euro back towards the 1.30 level later in US trading.

Source: VantagePoint Intermarket Analysis Software

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The Japanese machinery orders data was stronger than expected with the monthly decline held to 1.7% compared with expectations of decline of over 8% and this helped support the yen. There was evidence of exporter dollar selling which undermined the US currency with the financial-policy delays also a negative dollar influence.

There was some speculation over capital repatriation to Japan given a heavy schedule of US Treasury bond coupon payments over the next week. After hitting tough resistance above the 92 level, the dollar weakened back towards 91 as the yen regained ground on the crosses before consolidation in the middle of this range.

Although the dollar was unable to secure any significant momentum, the yen was generally weaker on the crosses as risk appetite was slightly firmer over the day.


Sterling sentiment was hampered initially on Monday by a downbeat CBI survey on credit availability which reinforced fears over a deepening recession.

The UK currency still retained a more resilient tone and gained support from better than expected results from Barclays Bank. The overall recovery in confidence towards the banking sector has been an important element for Sterling over the past two weeks and was again a significant factor on Monday.

After the initial losses, Sterling pushed stronger against major currencies with a three-week high close to 1.50 against the dollar before a retreat to 1.49. Sterling was also resilient against the Euro.

The UK data will have a significant impact over the next 48 hours with a particular focus on Wednesday's labour-market report while the latest Bank of England inflation report is also due on the same day. Before then, the latest trade data will be released on Tuesday and a sharp downturn in exports would tend to undermine Sterling.

Swiss franc

The dollar was unable to break resistance levels near 1.1680 against the franc on Monday and weakened to lows near 1.15. The franc had a weaker tone against the Euro and the US currency regained some ground later in New York trading.

Immediate demand for the franc was lessened to some extent by an improvement in risk appetite and a move away from low-yield instruments as markets looked to anticipate a stabilisation in the global economy. The recent National Bank rhetoric against currency strength has also been an important factor in curbing franc demand.

Source: VantagePoint Intermarket Analysis Software
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Australian dollar

The Australian dollar was unable to sustain Friday's gains in Asian trading on Monday as the US currency rallied. Nevertheless, overall confidence remained slightly stronger with optimism that the aggressive global policy action would underpin the economy. There were particular hopes surrounding China following last week's data and this helped curb Australian currency losses.

Risk appetite was generally firmer in European trading and pushed to a high near 0.6850 against the US currency which the strongest level for four weeks. The rally in international freight costs also helped to support the currency, although gains could prove to be brittle given global recession conditions.