Friday was a mixed day for the Dollar which lost ground to the Euro closing at 1.32931 but gained against the Pound. Advanced GDP figures were slightly poorer than expected but a much greater increase in consumer spending was interpreted as a more enduring sign of economic health than more temporary factors like generous liquidity, government spending and inventories. The major factors influencing the Greenback’s strength next week will be related to its risk avoidance role and the Non-Farm Payroll report on Friday. Recent buying has been seen as a flight from the Euro but if a more concrete bailout package materializes then the Dollar may see some selling pressure.

   After a volatile week the Euro posted gains during Friday’s trading reaching highs of 1.3341 against the Dollar and 0.8724 against the Pound. Momentum gained pace for an aid programme for Greece and on Sunday the details were finally unveiled of a 110 billion euro joint IMF-EU rescue package. Trading next week will rely upon how sentiment reacts to the details of the rescue plan and the extent that it is workable given the growing unrest in the country. There were violent May Day riots in Athens because austerity measures are seen as hitting the poor the most. On Tuesday there will be widespread strikes in the country. There are now question marks as to whether the conditions for aid can be realistically met with seemingly little political support and violent social unrest.

   The Pound lost ground to both the Dollar and the Euro on Friday. Cable closed down at 1.52722, still suffering from investor fears of a hung parliament. This remains the most likely outcome as every major opinion in the last 10 days has shown a hung parliament as the most likely outcome. Voting will take place on Thursday 6th May with results published in the early hours of the Friday.

   The Yen strengthened slightly on Friday closing at 93.841 against the Dollar. Economic reports that day seemed to indicate a slight ray of improvement in Japan’s battle with deflation. Officials forecasted CPI to reach 0.1% in 2011, revising a previous estimate of -0.2%.Nevertheless signs were still not strong enough to move the markets and CPI was actually down in March. Next week traders will be watching the next chapter of the Euro’s saga and US unemployment. There will be a lot of economic reports coming from Australia including a rate decision by the Reserve Bank of Australia. This may affect the Yen given Japan’s proximity and its heavy reliance on imported commodities and export led growth.

Analysis prepared by:

Joaquin Monfort
Forex4you analyst