Reports that the US authorities could take a stake of up to 40% in Citigroup pushed the Euro stronger in Asian trading on Monday as financial-sector stresses and policy developments remained in focus. Risk appetite recovered and this also curbed immediate dollar demand with the Euro pushing to highs near 1.30 against the dollar.

The Euro was unable to sustain the gains and weakened substantially back to near 1.27 late in the US session as erratic trading persisted. The currency was initially undermined by the inability to make a serious challenge on resistance near 1.30.

Selling pressure increased following comments from ECB Chairman Trichet who stated that the Euro-zone financial system was under severe strain which reinforced market fears. Confidence in the German economy remains fragile and sentiment is likely to be tested by Tuesday's IFO business confidence release with the Euro vulnerable if it is unable to take advantage of a firmer reading.

There were no significant US data releases during Monday and the dollar gained some renewed support as equity markets came under fresh selling pressure.

The comments from Fed Chairman Bernanke will be watched very closely on Tuesday as he delivers his semi-annual testimony on the economy to Congress. In particular, markets will look to assess his stance on possible moves towards the buying of US government debt and longer-term inflation policies. Paradoxically, a downbeat assessment could tend to support the dollar on defensive demand.

Source: VantagePoint Intermarket Analysis Software

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Confidence in the Japanese economy is continuing to weaken with the bankruptcy of credit supplier SFCG increasing fears that there will be further major difficulties in the financial sector which would put further downward pressure on credit supply and also continue to undermine the economy. There has also been unease over the latest trade data which is due later this week. Fears over the economy were illustrated by another 25-year low for the broad Topix share index on Monday.

In this context, the yen is again finding it more difficult to gain safe-haven support as it weakened to a 5-week low against the Euro. Subsequently, the dollar pushed back above 94 as yen sentiment remained weaker.

The Japanese currency weakened to 2009 lows close to the 95 level against the dollar and also dipped to near 122 against the Euro before finding some support as equities came under pressure.


Sterling continued to strengthen during Monday and pushed to highs above 1.4650 against the dollar during European trading while is also strengthened through 0.88 against the Euro, pushing towards 2009 Euro lows seen earlier in February.

Developments within the financial sector remained extremely important with Sterling gaining some initial support from reports that the Royal Bank of Scotland was set to announce a substantial sale of assets as part of a restructuring plan. In addition, the government announced a reversal of policy surrounding state-owned Northern Rock with the bank now set to expand lending this year.

Any tentative move towards a more stable financial sector would tend to be a positive factor for the UK currency, but sentiment is liable to fluctuate sharply with the latest data releases monitored closely on Tuesday.

Swiss franc

The dollar found support below 1.15 against the Swiss franc on Monday and recovered back to 1.1680 in New York while the franc was unable to make any significant headway against the Euro.

Expectations of increased support for the global banking sector curbed immediate demand for the franc on Monday. Underlying confidence in the local currency is also still weaker despite the franc's surge seen late in Europe on Friday. Uncertainty is liable to remain a key short-term feature.

Source: VantagePoint Intermarket Analysis Software

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Australian dollar

The firmer Australian dollar trend continued in local trading on Monday with the currency pushing to highs near the 0.6550 level against the US dollar. Expectations that the US administration will take a substantial holding in the major banks improved global risk appetite and also had a positive impact on the Australian dollar.

The strength in gold prices will continue to offer support to the Australian currency, offset by continuing fears over the global growth outlook. Degrees of fear tended to increase again in US trading and the currency weakened back to test support around the 0.6400 area as markets again struggled to secure a decisive trend.