The recent tradition was kept up as the Monday session again opened with the gap in favor of the European currencies against the US Dollar this time. However, the “buck” itself also noted the gaining gap to the Yen. Such optimism was caused with the news form the Europe that the EU summit had made a decision of making the stabilization fund in amount of 500 Billion of euro with the IMF additional inflow of 220/250 Billion targeting to support the debt market in the Europe. Moreover, it was announced that 5.5 Billion of euro would be coughed up to the Greeks immediately. To say it shortly, the troubles of the European countries were kind of solved so the purchases of the risky currencies started together with the US Dollar’s sales against this background. Though, such a layout wasn’t long. The US Dollar began to get back the before lost positions till the middle of the European session. As a result, the day was closed with the US Dollar’s “profit” both to the Euro and GB Pound, while the “greenback” advantage to the Yen was also maintained. After due deliberation the market players obviously found serious drawbacks in the EU developed programs. Besides, the British news, which afforded grounds for being uptight about anticipated parliamentary coalitional crisis, supported the “greenback” and allowed it neglect the losses completely. No significant statistics on the US economy was published. Today the market is going to get only the data on the wholesale stockpile in March, which is expected with the increase for 0.5% since after +0.6% in February, and also the IBD/TIPP economic sentiment index for April, where the raise from 48.4 till 48.9 is expected as well. This information will make no influence upon the market, because the market’s attention will be still focused on the European events. It’s entirely possible the current session will be the ranging trade as the market will take a time-out for reflection.

   The rejoicing caused with the massive program of aide to the Euro zone’s countries tickled over a cold minute. The Euro’s strengthen has already ceased at the European session. So the trading day, which had begun with the positive gap to the US Dollar, completed negatively compared to the opening prices. The announcement of the EU summit had decided to create the fund in total amount of 750 Billion of euro, including 500 Billion from EU and 250 Billion from IMF, while ECB would implement interventions to the bond markets targeting to prevent them from meltdown, touched off the market with great optimism. Another portion of good temper was reasoned with the report about the 5.5 Billion IMF credit to Greece immediately within further 30 Billion of euro. Nevertheless, the awakening of the fact the fulfillment of the plan needed the budgeting austerity together with the higher taxes levy, what in its turn would determine further recession, and further that these measures should be implemented with the governments of the countries, which face acute budgeting deficit, put a wet blanket on the investors. That’s why the Euro turned out to be under pressure again. The EU economic data included the information about the German foreign trading: the trading balance surplus grew up to 17.2 Billion from 12.7 Billion of euro in March, alongside to the predicted increase to 14.0. This surplus emerged thanks to the fast growth of export as this indicator grew up for 23% y/y till 85.6 Billion of euro, whereas import increased for 18% y/y to 68.4 Billion of euro only. There won’t be much statistics today. The only data, which will be represented to the market, are the April consumer price index (CPI) in Germany, which is expected at -0.1% m/m, 1.0% y/y, and also the wholesale price index in the same country with the probable growth to 0.3% m/m, 5.2% y/y. The investors are expected not to put special attention to this information. The market will expect further supplements and clarifications to the aide programs, and that exactly will be in the center of attention.

   Just like to the Euro, the British Pound was also in good odor with the market primarily, though later it sagged and lost to the US Dollar and closed the day with the negative dynamics. The main factor of influence was the information about the election, which had taken place in Great Britain the previous week. The Conservators’ gain and their further announcement of intents to form a coalition with the Liberal-Democratic forces supported the Sterling last Friday and opened the Monday session with the gap in favor of the Sterling. Later on, however, the information that the Liberal-Democratic leader Clegg would like to start the negotiations with the Labor Party and also the report that the Prime-Minister of Great Britain G. Brown was going to desert his posts of leader of the Labor Party and the Prime-Minister though would provide the coalitional negotiations with the Liberal-Democratic Party, got back the Sterling under the pressure. The market obviously began to consider that in case of the Conservators’ rise to power the stiffening of the monetary-crediting policy could begin much earlier, whereas the Labor Party adheres to more velvet positions and intends to begin “tightening the screws” later. The pronouncement of resolutions from the Committee for Monetary-Crediting Policy of the Bank of England aroused no serious move at the market as it was predictable and brought no additional information. The Committee decided to keep the volume of the redeemed bonds at the degree of 200 Billion of pound and also maintained the key interest rate at the level of 0.5%. Obviously, it’s not worth expecting any certainty from the British regulator still yet as the checkpoints can appear only after forming of the new government, and it’s long enough before it. Today the data on the manufacturing production and also the processing branch of industries will be published in the “Isles”. These indicators are expected with increase – for 0.3% m/m, 0.6% y/y in the manufacturing in general and for 0.3% m/m, 1.6% y/y in the processing sector. Nevertheless, the political component i.e., the form of coalition will still stay the main factor of influence.

   The currency of Japan was under the pressure all over the Monday session. The rejoicing caused with the reports from the Europe pushed upward the stock markets, and that in its turn made the Yen attractive from the side of the carry-trade foundering again and so reasoned its sales. It should also be mentioned, however, that the pressure on the Yen was restricted enough due to the high degree of uncertainty connected to the EU and British events probably. The Bank of Japan held an emergency meeting – the interest rate remained unchangeable, but the knot of the matter was the renovation of the US Dollar swap with the USA. It was concluded to renew the swap with FRS till the end of January 2011. It was also claimed that the US Dollar swap-lines should provide to avoid of lack of liquidities. The absence of necessity to change the estimation of the economy in the April report was also stated. There’s going to be no news from Japan, the Yen will further stay under the influence of inclination to risk. Taking into account that the market is prone to pessimism again, it’s reasonable to foresee the renovation of the Japanese currency’s strengthening.

Analysis prepared by:

Arkady Nagiev
Forex4you analyst