The desire of the investors to take profits on the positions open to the dollar decline helped the U.S. currency to regain leadership in the foreign exchange market last Thursday. The support for “bucks” also came from the lower appetite to risk amid evolving the extra features which make hope for the recovery of the world economy considerably less confident. In addition, the growing pessimism of investors in concern with the situation relating to Greece, which exposes a high chance of addressing for help to the IMF, if the EU does not devise a mechanism to aid in the nearest future. This provoked the increased interest towards the dollar and its strengthening against all its “opponents”. The results on economic data released on Thursday can be considered satisfactory. The production index in the zone FRB of Philadelphia grew faster than in the previous period - the index of business activity amounted to 18.9 from 17.6 in February, while the employment index rose to 8.4 from 7.4 but the new orders index fell to 9.3 from 22.7, which caused some concern about prospects. The consumer prices in February remained at previous levels, the consumer price index added 0.0% m / m in February after rising 0.2% in January. The base index, which does not take into account the price on food and fuel and with the help of which the Fed conducts an analysis of inflationary pressures, rose by 0.1% in February from -0.1% in January. Annual comparisons showed +2.1% y / y as a general indicator and +1.3% as the basic. Dynamics of the number of primary applications for unemployment benefits was also positive – appeared to match with the forecast and did not cause negative emotions in the market. Today’s significant information from the States is not expected, the range of trade is possible but the main factor of influence may be news from Europe on the issue of mentioned above Greece.
EUR
Germany’s rejecting to further stimulation of the EU economy increases the risk of a return to the fall of the economy and the Prime Minister of Greece, G. Papandreou, is to offer a week for the EU authorities to develop mechanisms to help Greece with alternative ultimatum option to address the International Monetary Fund, which is exacerbating the situation and leading to the continued sales of euro. The single currency has lost all the gains against the dollar made at the end of last week. Moreover, the data on the EU economy has not brought the optimism - in January there was recorded a serious current account deficit of payment balance in the amount of 8.1 billion euro. This negative is seen particularly solid in comparison with December, when there was surplus of 2.3 billion euro, the forecasts were expected with the negative results but only in the amount of 5.5 billion euro. Such alignment is dictated by negative trends in the exchange of goods - imports rose to 115.5 billion from 108.3 billion euro in December, while exports increased only to 113.2 billion from 112.6 billion euro. Today's publications have already shown price growth but only during the year, as for Germany - in February, the producer price index showed 0.0% m / m and -2.9% y / y, which appeared 0.8% m / m -3.4% y / y in January. The absence of monthly rise in prices increases the concern for conservation of deflation position for a long time. Later, the Head of the ECB, Trichet, will conduct a speech. Obviously, the threat of Greece to apply to the IMF, aggravating the situation, would require specific definitions and statements on the part of the Head of the European regulator which might trigger a surge of activity in the market.
GBP
The British currency as well as the euro fell at the auction on Thursday but its fall was much more restrained. Clearly, better-than-expected data provided support for sterling, while maintaining investor confidence. The net public sector borrowing of the UK in February totaled 12.4 billion, while expected 13.3 billion pounds, the net public sector demand for cash during the same period amounted to 7.7 billion with projections of 10 billion pounds. The total mortgage lending has been increased but only for a month, and in comparison to February of the last year it fell by 6.0%. Among the negative trends there is a significant drop rate of monetary growth, a broad aggregate M4 showed 0.2% m / m 3.6% y / y after 0.2% m / m, 4.9% y / y in January and stated that the BOE efforts to stimulate lending do not give the desired effect. Though, the main reason for the disorder was caused by the Confederation of British Industry (CBI) report, who announced the fall in industrial production in March, the index of manufacturing output in March was +5 to +7 in February, the analysts were expecting it to +9. By the end of the day, the pressure on “cable” was added by the representative of the Bank of England, E. Sentansa, who said that the fiscal tightening may be offset by a soft monetary policy and the new challenges in the economic recovery are not to be ignored. There will be no news on the economy of “islands” today but the pound may be influenced by the speech of another member of the Monetary Policy Committee of the BOE, P. Tucker, at the European session.
JPY
Currency of Japan recorded a small negative against the dollar up to the last session. Trade was conducted mostly in the ranges but with attempts to break the corridor on the background of a sharp increase in volatility after the news from Europe, which influenced the investors to escape from risk, and from the United States, by contrast, raised the willingness to take risks. The news, published today, showed growth, with very significant index of business activity in the industrial sector noted +3.8% m / m -0.3% m / m, forecasts expected 1.6% m / m. Perhaps, this is the evidence of sufficient effectiveness of government programs to maintain the economy and gives arguments to expect the improvement in the climate of the key sectors of the Japanese economy. With regard to the positions of the Japanese currency, there is apparently no change to be expected, at least today, before the end of the week. The end of the fiscal year and fears of the drastic measures by the government to weaken the yen are considered to be the two rear directional push factors to the expectations of the continuation of variable trade.
Analysis prepared by:
Arkady Nagiev
Forex4you analyst
