The Euro was unable to break above resistance near 1.29 against the dollar during Wednesday and had a consistently weaker tone. Standard & Poor's decision to downgrade Ukraine's debt rating further increased doubts over the outlook for Eastern European economies. Fears that there would be further destabilising losses within the banking sector also increased which undermined the Euro.

The US housing data remained depressed with existing home sales falling 5.6% in January to an annual rate of 4.49mn, the lowest rate since 1997. The number of houses for sale fell, although as a proportion of sales it rose over the month and remained at historically very high levels. Prices continued to decline to the lowest levels since 2003.

US equity markets rallied strongly on Tuesday, but markets were generally weaker again on Wednesday and risk appetite remained extremely fragile. Confidence in the global economy remained weak while there was a renewed lack of confidence over the success of measures to stabilise the US banking sector. In this environment, there was further defensive dollar demand on the lack of attractive alternatives. The US jobless claims will again be watched closely on Thursday following a succession of very weak reports and another figure above 600,000 would reinforce the lack of confidence.

The Euro dipped to lows below 1.27 in New York before finding some support on speculation over institutional support.

Source: VantagePoint Intermarket Analysis Software

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The Japanese currency remained weak in Asia on Wednesday as the economic data continued to signal a very sharp downturn. The trade account was in heavy deficit for January with exports falling by over 45% in the year to the lowest nominal level for 10 years.

Although the January data is weak on seasonal grounds, the export data will cause further alarm and reinforce economic fears. The government stresses have also tended to undermine sentiment.

There has been evidence of reduced exporter selling which would tend to undermine the yen, although dollar resistance levels are liable to become tougher to break as the yen is now approaching over-sold levels.

The yen regained some ground on the crosses during the day, but rallies quickly attracted selling pressure. The dollar stalled near 97.50 resistance in European trade as faltering risk appetite discouraged aggressive yen selling, but pushed to a fresh 3-month highs around 97.75 in New York.


Sterling was unable to break above 1.46 against the dollar during Wednesday and weakened sharply during the day with a low below 1.42. Sterling also retreated to beyond 0.89 against the Euro.

UK GDP was unrevised at -1.5% for the fourth quarter of 2009 compared with expectations of a downward revision to -1.6% with an annual decline of 1.9%. The index of services recorded a 0.9% decline in the three months to January which was also slightly stronger than expected.

Comments from Bank of England officials were generally downbeat with Blanchflower warning over the risk of a protracted recession and worsening conditions. There were also renewed fears over the banking sector as the government prepared to launch a bank stabilisation plan with the expectations of a huge public debt burden an underlying negative factor for the currency.

The comments from Bank of England Governor King will be watched very closely on Thursday with his stance on the economy and banking sector both very important for Sterling sentiment.

Swiss franc

After fluctuating around the 1.16 level against the franc during Wednesday, the dollar pushed higher to 1.17 in New York. The franc settled near 1.49 against the Euro after failing to break 1.48.

The renewed faltering in risk appetite provide some degree of support to the Swiss currency, although rallies soon hit resistance.

Developments within Eastern Europe will continue to be watched very closely in the short term and will tend to have a mixed impact on the Swiss currency. Gains on wider risk aversion will be countered by fears over the domestic economic and banking outlook.

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Australian dollar

The Australian dollar maintained a firmer tone in Asian trading on Wednesday. The domestic data provided some degree of support with an unexpected increase in construction activity.

Degrees of global risk appetite are still liable to remain the dominant currency influence and the very weak current data releases will be offset by hopes that conditions can be stabilised.

As Wall Street weakened, the Australian currency weakened to lows near 0.6450 against the US currency.