The Euro was unable to break above resistance levels around the 1.3080 region against the dollar on Thursday. From lows near 1.29 the Euro rallied back to 1.30 as moves were still influenced strongly by shifts in risk appetite.

The Euro gained some support from the Russian central bank announcements that the series of mini rouble devaluations would be halted.

The US economic data maintained a very weak tone as jobless claims increased to 589,000 in the latest week from 527,000 previously. The move back towards 26-year highs seen in December will maintain fears over the labour market. Housing starts also weakened further to a fresh 50-year low annualised rate of 0.55mn for December while permits were also at a very depressed level.

The comments on currencies will continue to be watched very closely in the short term. In congressional testimony, Treasury Secretary nominee Geithner stated that a strong dollar is in the national interest. Nevertheless, he also stated that President Obama believes that China is a currency manipulator and called for a realignment of currencies.

These comments will tend to unsettle underlying confidence in US assets and the dollar given the possibility of increased tensions with China and fears that Asian central banks could curb US Treasury buying.

Bond markets will therefore also be monitored closely as any further increase in yields would tend to put further downward pressure on the housing sector which would also maintain a lack of confidence in the wider economy.

Source: VantagePoint Intermarket Analysis Software

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The Finance Ministry warned against rapid currency moves on Thursday, edging closer towards intervention, with markets looking at the key 85 dollar support region. The Bank of Japan left interest rates on hold at 0.10% following the latest policy meeting. The bank confirmed that it would buy corporate bonds in the market and also warned again over the economic outlook.

The economic difficulties were illustrated by the latest trade data with Japan again running a monthly deficit. There was a severe 35% annual decline in exports which will maintain pressure for action to stem yen gains.

The dollar dipped to lows near the 88 region against the yen in Europe as risk appetite dipped again, but the US currency pushed back towards 89 in New York as Wall Street rallied off early lows.


Sterling was unable to sustain a move above 1.40 against the dollar on Thursday and was subjected to renewed selling pressure in Europe. The currency dipped to lows below 1.37 while also weakening to beyond 0.9450 against the Euro. Sterling recovered back towards 1.39 later in the day following reports that ratings agency Moody's would retain the AAA rating for UK debt.

The CBI industrial survey remained extremely weak with the orders component weakening further to -48 in January from -35 previously. Overall conditions were at the worst level for 26 years which will make it even more difficult for the economy to stabilise.

The UK data will be watched very closely on Friday with important reports on GDP and retail sales. There looks to be a strong probability that GDP will decline sharply for the fourth quarter.

Given the substantial seasonal adjustments required for December, there is also a high risk of an erratic reading on retail sales. Given that it is volume data, there is the possibility that sales will appear to have held firm.

Swiss franc

The dollar fluctuated in a 1.15-16 range against the franc during Thursday. There was also indecisive trading against the Euro with the franc recovering from lows close to 1.51.

Further selling pressure following Wednesday's comments on potential intervention from National Bank member Hildebrand was countered by some defensive support as risk appetite remained weak.

The Swiss ZEW confidence index improved slightly to -66.7 from -76.2 the previous month which suggests that the rate of decline may below slowing, although it remained at historically weak levels.

Source: VantagePoint Intermarket Analysis Software

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Australian dollar

The Australian dollar pushed to highs around 0.6650 against the US dollar in local trading on Thursday, but was unable to sustain the gains as underlying caution prevailed.

The degrees of risk appetite are liable to remain the key market factors in the short term as the global economy continues to weaken. This negative influence will be offset by hopes that there will be some improvement later in the year. The Australian currency tested lows around the 0.65 level before pushing back towards 0.66 later in US trading.