US Trade Deficit Wider Than Expected

EUR/USD

The Euro remained generally fragile in early Europe on Tuesday and weakened to test support below 1.2550 against the dollar.

The currency was undermined on structural grounds as ratings agency Moody’s cut Portugal’s credit rating by two notches to A1 from Aa2 which encouraged a renewed widening of European bond spreads. The latest German ZEW data was also weaker than expected with a decline in the business confidence index to 21.2 for July from 48.7 the previously. The data maintained fears over a renewed downturn in the Euro-zone economy, although ZEW officials were optimistic that a double-dip recession would be avoided.

The Euro found support at lower levels and the inability to break support levels near 1.25 encouraged a covering of short positions. There was also support from a successful Greek debt auction which boosted confidence that institutional demand for the Euro had improved.

The US trade deficit was wider than expected with an 18-month high of US$42.3bn for May from a revised 40.3bn the previous month. There were significant gains for imports and exports over the month which helped underpin risk appetite and Wall Street also drew some comfort from the latest quarterly earnings results.

The Euro gained support from the improvement in risk appetite and a move above the 1.2620 area triggered a fresh round of short covering and the Euro tested two-month highs above 1.2720 later in US trading.

Source: VantagePoint Intermarket Analysis Software

Call now and you will be provided with FREE recent forecasts
that are up to 86% accurate * 800-732-5407
If you would rather have the recent forecasts sent to you, please go here

Yen

The Japanese economic data was slightly stronger than expected with an increase in consumer confidence prompting the government to upgrade its assessment of the economy. The impact was limited, especially with fears that the government reform measures would be blocked in parliament following the Upper-House election defeat.

Risk appetite was initially fragile during Tuesday with a warning from the Chinese authorities over the need to tighten lending on property having a negative impact on equity-market sentiment. In this environment, the dollar was unable to make any significant headway and re-tested support levels close to the 88.50 level.

Wider weakness pushed the dollar to lows near 88 against the yen in US trading before a recovery to the 88.40 area as the yen came under some selling pressure on the crosses as there was some optimism surrounding US corporate earnings.

Sterling 

A weaker than expected RICS report on UK house prices for June did not have a significant market impact with Sterling able to hold above 1.50 against the dollar in early Europe on Tuesday.

Headline consumer inflation fell to 3.2% for June from 3.4% the previous month which was close to expectations. In contrast, the core rate was higher than expected at 3.1% from 2.9% previously. The inflation data is likely to ensure that there will be further uncertainties and divisions over monetary policy within the Bank of England.

MPC member Sentence repeated his preference for an early increase in interest rates with comments that rates at the emergency level of 0.50% were no longer required. He was, however, also anxious to comment that rates would need to remain at low levels to underpin the economy. Overall, there will be doubts whether the Bank of England will be in a position to sanction more than a small increase in rates over the next few months which will curb yield support.

Sterling gained some support from an improvement in risk appetite and there were gains to a high near 1.52 against the dollar as the US currency came under renewed selling pressure.

Source: VantagePoint Intermarket Analysis Software

Call now and you will be provided with FREE recent forecasts
that are up to 86% accurate * 800-732-5407
If you would rather have the recent forecasts sent to you, please go here

Swiss franc

The dollar was unable to make a fresh challenge on resistance levels above 1.0680 against the Swiss franc on Tuesday and weakened to lows just below 1.0520 in US trading with the US currency under wider selling pressure. The Euro was able to gain some respite against the franc and challenged resistance levels above 1.34.

The improvement in sentiment towards the Euro-zone bond markets will provide some degree of protection for the Euro in the short term. It may be difficult for the currency to secure sustained relief, especially given fears that longer-term capital outflows will persist.

Australian dollar

The domestic data recorded a small decline in business confidence which did not have a major impact. There was renewed caution over Asian equity markets which dampened demand for the Australian dollar and there was a slide to lows near 0.8680 before a partial recovery.

Equity markets rallied in US trading while the US dollar came under fresh selling pressure. This combination helped push the Australian dollar sharply firmer with a high above 0.8820 against the US currency late in New York.