US housing data was again stronger than expected

EUR/USD

The Euro was unable to regain the 1.23 level during Wednesday, but it also held above Tuesday’s lows with the currency able to find support above the 1.2150 level. Ranges were narrower with markets unable to attack key technical levels as consolidation dominated following Tuesday’s sharp moves.

There were no further major developments surrounding the Euro-zone economy with government officials denying that the French AAA credit rating could come under threat. There were also denials that global central banks were looking to diversify away from the Euro.

The US housing data was again stronger than expected with pending home sales rising 6.0% in April after a revised 7.1% gain the previous month. Sales were still being boosted by the imminent expiry of tax credits and the sector will face more testing times as these incentives finish.

Attention will focus on the labour market over the next 2 days with the ADP employment and latest jobless claims data due on Thursday followed by the monthly employment data on Friday. Markets are expecting solid growth in permanent employment and the payrolls data is also likely to be inflated by the hiring of temporary census workers which could trigger a very substantial monthly increase.

Markets will tend to take a positive view on the US economy unless the data is much weaker than expected which should provide some dollar support.

Risk appetite improved significantly in US trading as stock markets gained strongly. This helped the Euro resist renewed losses, but it was unable to make much headway which suggests that underlying demand for the currency is weak.

Source: VantagePoint Intermarket Analysis Software

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Yen

The domestic political situation continued to have some negative impact on the yen with the resignation of Prime Minster Hatoyama sparking a further round of uncertainty and doubts over medium-term economic policies. There was also speculation that present Finance Minister Kan could become the new Prime Minister and favour a weaker Japanese currency.

Risk conditions were mixed on Wednesday with the yen unable to gain much support and the dollar pushed to a high above 91.75 before consolidating above 91.20 with the yen losing ground on the crosses.

US funds were again keen buyers of the dollar, especially with optimism over the forthcoming US data and the US currency tested resistance levels above 92 against the Japanese currency. As Wall Street rallied strongly, the US currency was able to hold above the 92 level.

Sterling

Sterling maintained a firm tone in early Europe on Wednesday, still gaining some degree of support from Prudential’s decision to abandon its bid for AIG’s Asian operations, but this support faded during the day.

The PMI construction index remained comfortably above the 50 level which will help maintain near-term optimism over the housing sector. In contrast, the latest consumer lending data was weaker than expected which will maintain fears that consumer spending will falter, especially after a generally downbeat CBI report.

Given these concerns, the latest PMI index for the services sector will be watched closely on Thursday and any significant downturn in the index would be an important negative factor for Sterling.

Bank of England Governor King was confident that inflation would remain contained and he was also still very cautious over the economic outlook. The comments helped push Sterling to lows near 1.4550 against the dollar before a recovery to 1.4650.

Swiss franc

The dollar pushed to a high close to 1.16 against the Swiss franc on Wednesday, but was unable to make further headway and retreated back to the 1.1550 region later in the US session. The Euro was unable to make any impression on the Swiss currency and this held back the US dollar.

Domestically, there was a 1.3% increase in retail sales in the year to April from a revised 4% the previous month. The impact was limited, especially as markets have been focussed on the industrial outlook and the potential impact of franc gains against the Euro.

Source: VantagePoint Intermarket Analysis Software

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Australian dollar

There was still important Australian dollar selling pressure on rallies with a renewed test of support below the 0.83 level in local trading on Wednesday. The GDP data was slightly weaker than expected at 0.5% for the first quarter, but the previous figure was revised higher.

Doubts over the global economy and fears over a further decline in commodity prices will still tend to be a negative influence on the currency.

There was, however, a strong rebound on global stock markets during the US session and this propelled the Australian dollar to a high above the 0.84 level later in New York.