Since the beginning of trading on Tuesday the dollar enjoyed a high popularity in the currency market - the U.S. currency kept strengthening against the European and falling a bit as for the yen. It is obvious that a rather slow movement in assistance addressing to Greece at the meeting of the IMF, the EU and the Euro area increased uncertainty of the investors who chose to escape to the so-called asylum – which appear to be the dollar and the yen. The bid explosion of the “green” currency against the euro and the pound and selling it against the yen manifested itself after the rating agency Standard & Poor's lowering the ratings of Portugal and, once again, Greece. Against this background, the second half of the session was held in unconditional strengthening of the dollar and the yen. The buck’s support was supported by the news on the US economy. As it was noted the housing prices in the U.S. in February increased compared with the same period last year. The report of S & P Case-Shiller has shown that the price index for housing for 10 megacities in February increased by 1.4% y /y , and in 20 major cities rose by 0.6% y / y. Particularly, the data submitted by the private research group Conference Board - was indeed impressive – the consumer confidence index in the U.S. in  April has shown steady growth and reached its highest level since September 2008 - the indicator showed the rise to 57.9 against 52.3 in March. The March indicator was revised for the better, as earlier said about 52.5. The forecasts expected growth only up to the mark 54.0. Strong positive emotions were produced by the data from the regions - the Fed manufacturing index in Richmond in April is fixed at 30, when the previous publication noted 6 and the analysts have been expecting 7. The speech of the Fed Chairman B. Bernanke focused on reducing the budget deficit and, in this light, the need of changing the tax system. Today's news has not presented the relevant macro indicators but the market will be looking forward to the information from the U.S. Toward the end of the today’s session, after 2-day meeting, there will be announced the Fed rate decisions and the comments on the prospects for monetary policy. Any hints at tightening will provide further ground for the strengthening of the dollar. Prior to the announcement of decision FOMC, the trade is likely to show restraint, although, the profit taking cannot be ruled out after yesterday's rally.

   The sovereign debts issues of the Euro area continue to be the main factor of influence on the market. The uncertainty of Greece receiving an adequate support and the threat of the “domino effect” in the light of the similar risks as for the other countries of the bloc do not give investors the ground for changing attitudes towards the euro. The German Government’s position, still holding a firm line on Greece and demanding radical reforms, increase the uncertainty regarding the implementation of the aid programs. A powerful blow to the euro on Tuesday was the announcement of the rating agency Standard & Poor's about lowering of the rating on the long-term public debt of Portugal in two degrees to A-, with negative forecast and the long-term ratings and short-term debt of Greece to BB + and B from BBB + and A-2, respectively. Naturally, after such information the fall of the European currency has turned into a collapse, which has resulted in a test on the strength of the new local minima against the dollar. The economic data, published on Tuesday, were not bad - in Germany the consumer confidence index and the import prices increased, but, of course, it could not possibly help the euro to hold the position. Today, the news is also not much, there will be presented the data on consumer inflation in Germany, it is expected that the April index will remain in a small plus, but, naturally, it will not influence the market. All attention will continue to be directed to the news on the assistance plan. Clearly, the investors are not convinced that the EU, Greece and the IMF will be able to establish a credible plan of assistance, in addition, it seems, the fact that the negotiations schedule is rather passive adds uncertainty to the positive results - it is planned to conclude negotiations on assistance to Greece on May 2. Then, the finance ministers of the Euro area will hold talks on May 4 and on May 10 there will be a teleconference with the EU leaders. The truth is that everything fits the date of May 19 when the time for repayment of the Greek bonds comes. Today, apparently, the range trade can take place against the background of a breakdown after yesterday's rally and the expectations of the Fed decisions.

   Against the background of increasing interest to the dollar and the political risks in the country, where there is uncertainty in concern of the parliamentary elections, the British pound also fell against the bucks at the auction on Tuesday. The investors’ escape to the asylum of the safe currencies took away from the “cable” almost 200 points of the earlier gained positions. However, statistics on the economy the “islands” did not provide an explicit positive, as so often before, at the previous sessions, and most of the data shown are somewhat disappointing. According to CBI, the index of the retail sales in the UK in April unchanged in comparison to the previous month +13, while the share of firms that expect growth in sales in May, the figure constituted +17. Lending to non-financial companies in March fell to 3.0 billion from +0.4 billion pounds. The total mortgage lending remained stable - 8.7 billion pounds but the net mortgage lending fell to 2.4 billion pounds from 2.7 billion, although, the number of approved applications for the loan continues to has grown, recorded 34 905 after 33 360. Today’s news on the economy of Britain is not to be published, the pound will remain under the overall mood in relation to risk and in expectation of the information from the U.S. about the Fed decisions. The optimism today is unlikely to show out for the pound, the trading, apparently, will be in the range, although, the probability of the transactions on the profit taking cannot be excluded.

   The Japanese currency was again the focus of the market. Avoiding risk has led to the closure of the carry trade positions financed by the yen, which strengthened the Japanese currency around the “front” against all the majors. The basis of such interest to the yen has been provided, of course, by the news from the continental Europe about the lowering of the ratings of Greece and Portugal. The data on the “Land of the Rising Sun” economy was not much, the April indicator of confidence in small business has been published. The result turned positive - the mood rose to 46.8 after 45.8 previously. The published data already demonstrated a good momentum in the retail trade of Japan, the trade indicator in the country increased -  showing +0.8% m / m and +4.7% y / y, when there was expected less interesting dynamics -  -0.M 6% / m and +3.7% y / y. At today's session, before the publication of the Fed decisions, the yen appears to remain in a narrow range, unless, of course, any information on the Euro zone countries evolves. The addition of the negative news from Europe will encourage the further strengthening of the Japanese currency. At the same time, the information from the U.S. may return strengthening of the USD/JPY pair in case it contains the prospects of the early tightening in the monetary policy.

Analysis prepared by:

Arkady Nagiev
Forex4you analyst