Daily Forex Commentary 19/7/2010

:: Australian Dollar: The Aussie dollar held onto support around 0.8750 in early offshore trade rallying back above the 88 cent handle on the back of gains in EUR/USD. The mood towards the commodity based currencies soured however in North American trade with risk aversion back on the table following a disappointing reading on the University of Michigan's consumer sentiment survey and large losses on Wall Street. As a result the AUD/USD fell sharply to finish the week's trade around the 87 cent handle with more downward pressure being applied in early Monday morning exchange the AUD/USD is currently trading at 0.8650. With no Australian economic data scheduled for release today it appears as though the AUD will remain heavy with the next level of technical support likely between 0.8620 and 0.8600.

- We expect a range today in the AUD/USD rate of 0.8620 to 0.8720

:: Great Britain Pound: The Pound Sterling begun Friday's London session on a positive note pressing against 1.5450 in exchange with the Greenback. Once again the Bank of England's board member Andrew Sentance was talking up the need for tighter monetary policy in the U.K. In an interview on BBC radio he said "If we can raise interest rates in a gradual way that will be helpful for the recovery because it will mean there won't be a big shock to the business community." Momentum changed however during the remainder of the offshore session with pessimism surrounding the long term global economic recovery resurfacing as North American equity markets fell, ending a two week rally. The GBP/USD opens substantially lower in Asia this morning exchanging back at 1.5280 whilst large falls in the Aussie dollar puts the GBP/AUD cross rate relatively unchanged at 1.7625.

- We expect a range today in the GBP/AUD rate of 1.7575 to 1.7725

:: New Zealand Dollar: After exchanging above the 73 cent handle on Friday the Kiwi traded 3.2% lower at 0.7070 in thin Monday morning trade. Fridays CPI announcement showed inflation in New Zealand increased a less than expected 0.3% during the second quarter taking the annual rate down from 2% to 1.8%. The news sent the NZD/USD lower immediately in Asia with offshore markets continuing to punish the Kiwi. Adding to the downside momentum in Europe and North America was poor consumer sentiment and large falls in U.S financial stocks with Citigroup and Bank of America amongst the largest names to finish in the red. With investors sensitive to more downside shocks the NZD/USD is likely to struggle to break back above short term technical resistance between 0.7125 and 0.7150 in Asia today.

- We expect a range today in the NZD/USD rate of 0.7025 to 0.7125

:: Majors: EUR/USD touched the psychological 1.3 level for the first time in over two months despite a massive blowout in the Euro-zone trade deficit. Economists had forecast for a relatively small deficit of around 0.5 billion with the 3.4 billion EUR result coming as a surprise. The Euro reversed earlier gains during the North American time-zone however with the release of U.S economic data. Headline Consumer Price Index or CPI as it is known fell 0.1% whilst the core figure which excludes the volatile food and energy components rose 0.2%, beating expectations of a 0.1% gain. It was the University of Michigan's closely watched consumer sentiment index that caught the market by surprise though falling from 76 to 66.5 in a preliminary reading for the month of July. Risk aversion returned on the back of the announcement with lower than estimated sales reported by several big U.S financial institutions sending equity markets down 2.5% and adding to the EUR/USD selling. The big dollar finished the week at 1.2925 against the Euro and 86.70 against the Yen, the lowest level in USD/JPY since December last year.

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