The Euro was unable to push above 1.2950 against the dollar on Thursday and had a generally weaker tone in choppy conditions.

The European industrial data remained weak with a 2.6% decline for December with a 12% annual decline which was a record annual fall for the region. There were further stresses within Eastern Europe and this also remained a negative factor for the Euro, especially with weak confidence surrounding the financial sector

The US retail sales data was stronger than expected with a headline 1.0% increase for January, in contrast to expectations for a further monthly decline, and this was the first increase for seven months. Underlying confidence was still fragile following a revised 3.0% decline the previous month and the improvement in risk appetite was short lived.

The labour-market data remained weak with initial jobless claims falling only slightly to 623,000 in the latest week from a revised 631,000 previously. The extremely high claims level will maintain fears over employment and future spending. There was also a significant decline in business inventories which will increase speculation over a downward revision to fourth-quarter GDP while the NAR reported that house-prices had fallen to a five-year low.

The Euro dipped to lows near 1.2720 against the US currency before rallying back above the 1.28 level as the Euro found support at important medium-term technical levels. The dollar gained renewed support when Wall Street weakened, but there was another reversal late in US trading with stocks and the Euro rallying on speculation over further measures to curb US foreclosures. Erratic movements are liable to persist.

Source: VantagePoint Intermarket Analysis Software

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The US currency has edged lower again in Asia on Thursday with unease over the US budget and financial measures preventing any significant boost to sentiment.

Confidence in Japanese markets remained fragile with the Nikkei index weakening significantly. Domestically, wholesale prices fell 0.2% in the year to January, the first decline for five years, which reinforced deflation fears.

Global exchange rate policies will remain an important focus ahead of the G7 meetings and any evidence of an aggressive policy on the Chinese yuan and increased friction over exchange rates would tend to put upward pressure on the yen.

The dollar found support below the 90 level with reports that the Japanese postal fund was buying dollars on the approach to 89.80 and it pushed back to near 91 in US trading as Wall Street rallied with the Euro rallying on the crosses.


Sterling came under further pressure in European trading on Thursday with lows beyond 0.9050 against the Euro.

Sterling was still being undermined by the Bank of England inflation report, especially with speculation over an early move to quantitative easing which would pose very important risks to the currency. The housing data provided no relief with confirmation that the number of home-purchase loans fell by close to 50% in 2008.

The UK currency was also undermined by a general decline in risk appetite as global equity markets were generally weaker. Moody's warned that the AAA credit ratings for the UK and US would be tested by the current crisis.

The UK currency weakened to lows near 1.4130 against the dollar, but found some support below 1.42 and regained ground late in US trading as US equities rallied.

Swiss franc

The dollar pushed higher to test levels above the 1.17 level against the franc on Thursday, but was unable to sustain the gains. The franc was able to resist significant selling against the Euro, especially as risk conditions were less favourable, although there was resistance beyond 1.49.

The franc continued to gain some defensive support as global equity markets were generally weaker, although indecision remained a key feature.

The Swiss consumer confidence data was slightly stronger than expected, although the impact is liable to be limited given fears over the industrial sector.

Source: VantagePoint Intermarket Analysis Software

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Australian dollar

Although unemployment rose to 4.8% in January from 4.5%, the employment data was stronger than expected with a 1,200 increase for January after no change the previous month.

The data will tend to have a small positive currency impact, but the Australian dollar moves will still be correlated strongly with degrees of risk appetite and there will be little scope for strong gains unless confidence improves.

In this context, a decline on Wall Street amid global economic fears pushed the Australian dollar to lows near 0.6435 in early New York before a rebound back above the 0.65 level.