The Euro found support below the 1.29 level in early Europe on Monday and then pushed steadily stronger during the day. The Euro was supported by an improvement in risk appetite while technical considerations were also important as the Euro bounced from support levels seen late last week.

The US existing home sales data was stronger than expected with sales increasing to an annual rate of 4.74mn in December from 4.45mn the previous month. There was a significant decline in inventories over the month as prices continued to weaken. This combination will trigger some optimism that falling prices will lead to an increase in sales and this helped improve risk appetite. The leading indicators data was also stronger than expected for the month.

The earnings report from Caterpillar were weaker than expected with a sharp downgrading of 2009 estimates which will reinforce fears over the industrial sector, although the immediate impact was limited.

After no major economic releases on Monday, the German IFO index will be watched closely on Tuesday and any improvement in the index would provide some near-term Euro support.

With markets still trading strongly according to degrees of risk appetite, the dollar remains in the position where it is tending to gain support on economic fears while demand declines when confidence improves. Following the US data, the Euro maintained a firm tone with a push to highs around 1.32 which was the largest advance for 2009.

Source: VantagePoint Intermarket Analysis Software

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Market conditions were subdued in Asian trading on Monday with many markets closed for the lunar New Year holiday. The Nikkei attempted to rally, but struggled to sustained the gains as underlying confidence remained very fragile as domestic and global growth fears continued.

The yen faced firm resistance towards the 88 region, especially with markets uneasy over the risk of Finance Ministry intervention. The situation surrounding China will also continue to be watched closely with the dollar liable to be at serious risk if tensions between the US administration and the Chinese authorities over the yuan intensify.

There was some improvement in risk appetite during the day and this pushed the yen weaker, especially against the Euro. The dollar strengthened to highs around 89.70, but was unable to sustain the gains and retreated to near 89 late in US trading.


Sterling remained under pressure in early European trading on Monday as sentiment remained extremely weak with particular fears over the banking sector. There was a test of support below 1.36 against the dollar while Sterling also dipped to lows beyond the 0.95 level.

In an unusual move, Barclays Bank issued an open trading letter in an attempt to reassure markets over its earnings prospects. This did have a positive impact with a sharp rise in the share price and the rally in financial stocks also helped Sterling recover on a renewed round of short covering.

The latest mortgage approvals data recorded an increase to 22,100 in December from 17,400 the previous month, but there was still an annual decline of over 50% and gross lending remained at depressed levels. There may be some hopes that the downturn is stabilising, but sentiment will remain weak.

Sterling pushed to highs near 1.40 against the dollar as the US currency weakened while Sterling also found support weaker than 0.95 against the Euro.

Swiss franc

The dollar was unable to push above the 1.1650 level against the franc on Monday and retreated sharply to lows below 1.14 in New York. The Swiss currency settled slightly stronger than 1.50 against the Euro after fluctuating around this level during the day.

A very tentative improvement in risk appetite dampened defensive demand for the franc to some extent. There was further speculation that the National Bank would act to intervene and weaken the franc if it strengthens sharply against the Euro.

Source: VantagePoint Intermarket Analysis Software

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Australian dollar

The Australian dollar has continued to find support below the 0.65 level against the US currency, while rallies have also tended to encounter selling pressure quickly.

Confidence in the regional economy remains weak and this will continue to hamper the Australian dollar. There will be particular fears over the export sector and the outlook for commodity earnings as industrial pressure continue to weaken. The currency will gain some support from the strength in gold prices and the Australian dollar tested levels above 0.66 in US trading on Monday as the US currency faltered with gains on Wall Street also a positive influence.