Markets will still look to push the Euro stronger in the near term. Overall confidence in the US economy will remain weaker in the short term with the industrial survey data reinforcing expectations of a significant slowdown. The shift in Federal Reserve language will also undermine support for the dollar on yield grounds. Euro-zone confidence can remain slightly stronger in the short term, but the currency is now approaching levels where valuations are looking expensive again. Unease over the global economy will also provide important defensive dollar support. Given the net global economic risks, the Euro is likely to face substantial medium-term pressure near the 1.30 region with selling looking attractive above this level.
The US data was again weaker than expected with a particular focus on the industrial sector. The New York manufacturing index declined to 5.1 for July from 19.6 the previous month and the Philadelphia Fed index also dipped to 5.1 from 10.0. Industrial production rose 0.1% for June which did not have a significant impact. With a deterioration in business confidence there were further fears that the US economy would slow significantly over the second half of 2010.
There was a 0.5% decline in producer prices for June which reinforced market expectations that the Federal Reserve could take additional steps to support the economy later in 2010. The dollar suffered from a lack of yield support and remained under pressure against the major currencies as it also struggled to gain defensive support.
The Euro continue to challenge dollar support levels and the Euro pushed to fresh two-month highs above 1.29 against the dollar in New York trading with the Euro breaking higher again in Europe on Friday to a peak above 1.2980.