The Greek setup and the troubles of other Euro countries continued to “drive” the currency market last week as well. The first part of the former week was negative as the uncertainty deepened, the Greek T-Bonds’ profitability up-rocketed overmuch, and finally, the S&P Rating Agency sliced down the ratings not only for Greece, but also Portugal and Spain. But later the tone change into positive due to glanced hopes for the publicizing of the detailed Greek rescue outline in the near time, because both EU and IMF started to make arrangements, and this process likes to be successful. This setting certainly supported the US Dollar at first as this currency was gaining to the Euro and GB Pound, but declining as for the Yen; though later the situation pressed on “greenback”. As a result, the “buck” completed the weekly session with the increase against the European currencies and with some losing to the Yen. The publication of the FRS recent meeting’s minute caused reduction of interest to the American currency as this document made another warning about the low interest rates for long enough still but no hints on possible stiffening of the monetary policy in the near future. Meanwhile, the weekly represented data on the US economy demonstrated reasonably good results as GDP increased for 0.8% in the first quarter compared to the 4th quarter of 2009, the home prices in 20 megacities of the USA grew up for 0.6% annually in February according to the report of S&P/Case-Shiller, and finally, the Conference Board stated the consumer sentiment had brightened in April, whereas the weekly jobless claims had showed a slight decrease even though. Furthermore, the regional production activity showed a distinct increase as the FRS Chicago, Dallas, Kansas-City and Richmond made good statements, at that such reported advancing indicators as new orders, investments and employment, which afford grounds for expecting positive prospects, kept stride. This week quite a large statistic folder on the US economy is going to be represented. The employment will be an overarching theme as the Labor Report for April is to be represented in the end of the week. The market will be looking forward for these data, and the gamblers will be girded for this. As forecasted, the payrolls increase is expected to be even more powerful than in March. Of course, it’s good news for the “buck”. The current session’s data bring information, which allows presuming the dynamics of the home demand in the USA, as both the personal incomes and expenses are expected raising, especially the latter ones. The expenses were +0.7% in March thereupon +0.3% before and the earnings – +0.3% since after 0.0% in February; and it’s a reasonably good value. However, the manufacturing trade is expected decreasing, and the development expenses with minus. Nevertheless, the messages form the Europe will be the main source of lead and also make an impact on the market climate for today and next few days, because the settlement concerning the aide for Greece has been made. So, this optimism may press on the US Dollar, and the American currency will turn out to be under the sales’ pressure.

   The common European currency was down in the beginning of the previous week as the Greek troubles started another circuit. The EU requirements for Greece as to put in a comprehensive plan for budgeting deficit shortage weren’t responded satisfactory. That in its turn jacked up the incredulity to the Greeks and certainly the profitability of the treasury securities – 2-year T-Bonds reached 38% per annum. The S&P also poured “oil in flame” as it downgraded the Greek rating for 3 points at once. Moreover, the agency went the extra mile as it included Portugal into the “blacklist” while degrading it for 2 points, and also Spain, which had got off with nothing more than a fright thereupon downgrade of its rating for a point. Anyway, the market has never responded this knowledge with the massive sales of the Euro. Though, the attitude to the common currency began to change till the end of the week. The investors became optimistic in the forefront of the news that the EU and IMF negotiations about the rescue package in the amount of 100/130 Billion of Euro for a period of three years were successfully progressed and their result would be publicized in the closest time. The Euro has slightly neglected its losses to the “buck”, though the week completed in the disfavor of the European block’s currency after all. The news of the former weekend proved these expectances, because Greece made an arrangement with both the European Union and IMF of obtaining the credit in the amount of annual trench of 45 Billion of Euro during three years. The credit is granted by the countries of the Euro zone and also IMF, though the Greeks are obliged to impose state budgeting deficit shortage’s austerity i.e., to whittle down the state expenses, wages, pensions and the number of the public sector workers. This information will probably influence upon the trading climate for the nearest time, that’s why the market will start the massive and steady purchases of the common currency. The EU economic statistics was inconsiderably little in number and hadn’t an effect on the course of the market events. The sentiment indexes, as recently usual, showed a confident advance. The consumer sentiment improved in Germany. In accordance with the results of the German statistics bodies the wholesales degree increased while the unemployment curtailed in this country. However, the ILO calculating techniques state a worse state of affairs. The unemployment rate is still kept at the former 10.0% all over the Euro zone in general, though the size of the “jobless army” grew up for another 101 thousand. The consumer prices sank down for 0.1% in April in Germany, but increased for 1.5% over the Euro zone per annum. However, it’s also worthwhile noting that the price increase is accounted for world market raw material prices boost, and that’s far from meaning the demand’s increase. The forecasts based upon the current week data predict some support to the common European currency from the side of the data on German economy, as here the April increase of the industrial production for 1.5% m/m, 6.3% y/y and also the manufacturing orders for 1.4% m/m 21.3% y/y is expected. The final values of the purchasing managers’ index (PMI) for the manufacturing and services of both Germany and EU aren’t likely to be revised. However, the barnburner of this week is going to become the ECB decision concerning the interest rate. This instrument is predicted to be kept at the level of 1.0%; whereas the focal point of the press conference is most likely to be the Greek affairs and the budgeting situations in other countries of the Euro zone.

   The British Pound was pressed even more greatly than the Euro in the beginning of the former week. Obviously, the concerns raised that Great Britain might attract attention of the rating agencies as it faced the same serious budgeting deficit as the European block countries. It happened due to the aggravation of deficit troubles in the Euro zone’s countries and also the downgrading of their rates by this reason. Moreover, the recent polls on the political preferences of the Britons state the “hung parliament” might be a possible payoff of these elections. The value of the credit default swap to the British state debt has doubled since the beginning of the current year, and that proves the high degree of the market’s confidence. Meanwhile, the economic data from the “Isles” stated the multi directional dynamics as the home price are further increasing, and the Confederation of the British Industries (CBI) accounted for positive retails sales’ balance in April, though the dynamics turned to be below the forecasted rate. At the same time, the consumer sentiment declined, and the mortgage loaning starts to retard. It obviously may be considered as the first note that the real estates market will begin to boil down as the prices don’t apparently stipulate to purchase any more. The reports of this week will show the quantity of the approved mortgage loans and represent the “triptych” of the business intensity situation in Great Britain for April. The PMI values for all three branches – the manufacturing, development and services – are predicted increasing. Besides, the manufacturing prices’ dynamics is expected to be seen with another raise in April. However, whereas the general parliamentary elections are to be on this Thursday in Great Britain, the economic data won’t make as much influence as usual. The parliamentary distribution of political forces will attract all attention of the market. If it becomes clear that the British Parliament really has no majority, which let make quick decisions aimed to curtail the budgeting deficit, the risks of downgrading the rate of this country will greatly increase and that will certainly cause the pressure’s increase on the British Pound.

   The Japanese currency completed the week with a small gain to the US Dollar. The major part of the trades was the ranging trade as for the pair of USD/JPY. The burst of activity was in the middle of the trades when at first the Yen mainly enforced as a shelter-currency, because the departure out of risk achieved its maximum possible value amidst the downgrading of the European countries’ rates; and then it sharply declined when the market tension started to release. There was a lot of information on Japan in the end of the month as usual. The prices data showed the deflation was at the same high level as the dull home demand failed to stipulate the price increase. However, the March values offer hopes for the improvement, because the retail sales grew up for 4.7% annually, and the households’ expenses – for 4.4% due to the cars and home electronics sales promotion. However, the unemployment rate increased for 0.1% till 5.0% and the number of the jobless increased for 100 thousand per month. The wages rose up per annum due to the overtime premium only. The stimulating program reestablished the development affairs as the quantity of both the new constructions and development orders increased. The Bank of Japan kept the major rate at the same level and didn’t change the volume of the quantitative softening program. However, due to the recent comments of the BoJ functionaries pointing to the necessity of some extra softening measures, the assets redemption program is supposed to be expanded during the next meeting, which will take its place in the end of this month. There’s going to be little economic statistics on Japan this week as it’s mainly off-hour, except for Friday, when the data on the money supply are going to be published. This value is predicted to demonstrate the extensions in April. The Yen’s positions will still stay under the influence of the level of inclination to risk. There’re good reasons to observe the Yen under the pressure, as a carry trade deals’ founder, under the terms of the expected optimistic outburst concerning the balancing of the European affairs connected to the Greek troubles.

Analysis prepared by:

Arkady Nagiev
Forex4you analyst