US Jobless Claims Data Recorded A Small Increase

EUR/USD

The Euro generally consolidated ahead of the ECB interest rate decision, although there was a brief spike to the 1.3380 area on reports that the EU commission was backing a more comprehensive recapitalisation of the banking sector.

The ECB left interest rates on hold at 1.50% following the latest council meeting, in line with the consensus expectations, although a sizeable minority had expected the bank to cut interest rates.

In the press conference following the decision, Bank President Trichet, in his final meeting announced that the ECB would introduce long-term repo operations of 12 and 13-months to help bolster liquidity. The bank would also re-start the purchase of covered bonds in a further measure designed to boost confidence.

Trichet stated that downside risks to the economy had intensified, but he was very anxious not to make a commitment to lower interest rates. There was also a clear reference to the rate decision have been a consensus which indicated that some members had pushed for interest rates to be lowered. There will be concerns that incoming President Draghi will find it difficult to cut interest rates at his first meeting which will maintain uncertainty.

Euro-group head Juncker stated that the EFSF couldn't deal with an Italian rescue and underlying sentiment remained extremely fragile. The Euro initially weakened to test support below 1.3250 against the dollar during Trichet's press conference, but it then rallied and there was an important covering of short positions as the currency as it pushed to highs near 1.3450 in New York as risk appetite also improved.

The latest US jobless claims data recorded a small increase to 401,000 in the latest week from 395,000 previously which will maintain some hopes for a slightly better than expected payroll figure on Friday. The Euro consolidated above 1.34 in Asia on Friday.

Source: VantagePoint Intermarket Analysis Software

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Yen

There was an element of erratic yen trading ahead of the US open on Thursday, but underlying ranges were still very narrow as the US currency found support just above 76.60.  Currency movement was still very limited as the two moved in line with trends in risk appetite.

The Bank of Japan made no changes to monetary policy at the latest policy meeting with interest rates held below 0.10% while there were no moves to expand quantitative easing.

The lack of fresh measures will dampen expectations that there will be intervention to weaken the Japanese currency, but markets will remain on high alert over the situation as competitiveness issues will persist.

Sterling

Sterling found support on dips to the 1.54 area against the dollar ahead of the UK interest rate decision and pushed to a high near 1.55, primarily due to the impact of a weaker US currency.

There was no surprise with the interest rate decision as rates were left on hold at 0.50% for the 28^th consecutive month. There was, however, a surprise with the asset-purchases target as the MPC sanctioned a further GBP75bn increase to GBP275bn. A minority of analysts had expected an increase, but most forecasts were centred on a GBP50bn increase.

The Bank of England stated that an easier policy was required to meet its medium-term inflation targets, comments which may come as a surprise given that inflation is more than twice the 2.0% target.

Bank Governor King was very pessimistic surrounding the UK and global economy in media comments with the UK outlook damaged by a slower global economy and by the Euro-zone turmoil. He also stated that the global economy faced its worst crisis. There will be some fears that the bank has effectively panicked and the move may, therefore, not be effective in boosting confidence.

Sterling hit a 14-month low against the dollar, dipping to lows around 1.5270 before staging a sizeable recovery  to near 1.5450 as the US currency came under pressure.

Swiss franc

The franc remained firmly on the defensive against the Euro in European trading on Thursday and was unable to gain any fresh traction. The currency was undermined by a general recovery in risk appetite and further speculation that the National Bank would push for a weaker franc.

The latest reserves figures recorded an increase of close to CHF30bn and the estimates suggested that the bank had intervened by at least EUR10bn during the latest month.

The dollar was unable to take full advantage of a weaker franc tone on the crosses, but did rally to a high just above 0.9310 before retreating to the 0.9230 area.

Source: VantagePoint Intermarket Analysis Software

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Australian dollar

The Australian dollar was again subjected to volatile trading during Thursday. From a high near 0.9740, there was a decline to test support below 0.9650, but the currency then rallied back to a peak around 0.9750 later in the New York session.

The currency gained some support from a stabilisation in risk appetite as Wall Street attempted to move higher while there was some relief that the Euro-zone was looking to strengthen the banking sector through fresh capital issuance.

The Australian currency maintained a stronger tone in the Asian session on Friday as it pushed to highs near 0.98.