The Euro again found support below the 1.27 level in early Europe on Thursday. It was unable to push above 1.2810 with ranges generally narrower and drifted back towards 1.27 in New York as Wall Street edged lower again.

The US data has continued to be weaker than expected and signalled further severe near-term pressures in the economy. Initial jobless claims increased again in the latest week to 667,000 from a revised 631,000 previously and this was the highest figure since 1982 while continuing claims pushed to a record high above the 5 million level.

Durable goods orders fell 5.2% for January while there was a 2.5% core decline over the month, the sixth successive decline.

As far as the housing sector is concerned, new home sales declined to an annual rate of 309,000 from a revised 344,000 previously. Although the number of inventories declined, there was a further increase as a proportion of sales while prices continued to fall.

The data continues to illustrate that the economy is contracting rapidly during the first quarter and there will also be expectations that the fourth quarter data will be revised down to at least 5% in the release on Friday.

German unemployment rose by a further 40,000 in January reinforcing the recent deterioration in the economy and there was a further decline in Euro-zone business confidence. Confidence in both currencies remains fragile with the dollar still gaining some defensive support given increased fears over the global economy, especially with gold prices correcting weaker.

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The yen remained generally weaker in Asian trading on Thursday despite the pressure for a limited consolidation.

The latest capital account data recorded an increase in net investment outflows which will reinforce negative yen sentiment. There is additional pressure for the Bank of Japan to buy equities directly to support the stock market, especially with the main indices trapped near 26-year lows.

As yen sentiment remained substantially weaker, the yen came under further pressure in US trading with the dollar pushing to a high above 98.50 before a retreat. Markets will continue to challenge resistance levels, although there will be increased caution on any approach to near 100, especially as capital repatriation is still a threat.

Demands for a more aggressive monetary policy will also intensify if there is very weak consumer inflation and unemployment data on Friday. The Japanese industrial data will also be watched very closely with another very sharp decline likely.


Sterling remained weak in early European trading as the banking-sector fears persisted with a further test of support below 1.42 against the dollar.

The Nationwide reported a further 1.8% decline in house prices for February to give an 18% annual decline.  The Royal Bank of Scotland posted losses of over GBP25bn, illustrating severe stresses within the sector. Confidence was supported to some extent by the plans to provide additional support and effectively place bad loans in a government-supported insurance scheme. With extra support, there will be hopes that the banking sector will start to stabilise and Sterling recovered to highs around 1.4380.

The near-term Sterling moves will tend to be influenced strongly by trends in the domestic banking sector and degrees of risk appetite with lower US equities triggering modest losses in New York.

Swiss franc

The near-term franc moves will remain correlated strongly with degrees of risk appetite. Resistance levels against major currencies are still liable to be difficult to break given the underlying lack of confidence in the Swiss outlook. A weak KOF index on Friday would reinforce pessimism towards the economy and currency.

The dollar found support below 1.16 against the franc on Thursday, but was unable to sustain a move above 1.17 in generally tentative trading. The Swiss currency was contained within relatively narrow ranges against the Euro and settled near 1.4850.

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Australian dollar

The Australian dollar was unable to make significant headway in local trading on Thursday, but there was support on retreats towards the 0.6450 level against the US dollar.

The domestic capital spending data was stronger than expected with a firm 6% fourth-quarter rise in investment. The data will underpin confidence and lessen expectations of further aggressive interest rate cuts at next week's monetary meeting which should also provide some degree of Australian dollar support.

The decline in gold prices tended to stifle support and it consolidated around 0.65 against the US dollar.