The Wednesday trading results conciliated the idea of break in the runaway strengthening of the “buck” and also the possible massive retracement. The American currency yielded some part of its positions to the European currencies. Despite that the lasting sagging to the Yen prompts the insufficient degree of the inclination to risk. In the beginning of the previous trades the “greenback” went ahead its strengthening to the Euro and GB Pound as the investors apprehensions as for the national debts’ troubles are still strong. Moreover, the steps made by Germany, which prohibited fiduciary short sales of some debt obligations within the Euro zone, afforded grounds for the concerns and slightly enforced the pressure on the Euro. Though, the situation changed a bit later – when the rumors about possible intervention from the part of ECB and some other leading CBs aimed to support the common European currency appeared. Some belief in such rumors was grounded with the steps of the Swiss National Bank, which was purchasing the Euro for the sake of dulling its national currency. There was little economic news from the USA, though they occasioned the sales-offs of the “buck”. The lowered inflation greatly cut the likelihood of the Federal Reserve’s policy stiffening as the US Dollar’s sales strengthened thereupon these data had been published. The consumer price index (CPI) decreased in April a bit; however, the Core CPI remained unchangeable compared to the previous month. In accordance with the represented data the general indicator stated -0.1% in April, while the Core one – 0.0%. The forecasts expected the advance of the general index for 0.1% m/m, annually it was +2.2% y/y for general and +0.9% y/y for the core one. The publicized FOMC minutes noted the positive mood of the United States’ regulator, but they had no hints that the monetary policy would incur stiffening in the nearest time. In the event, the US regulator is no haste to get out of the mortgage-backed securities assets as the greater part of the Committee’s members are disposed to begin these sales just after the first increase of the Federal Funds interest rate. This paper has also fixed the upgrading revision of the GDP-2010 forecast – from previous 2.8%-3.5% till 3.2%-3.7%, and also greater lowering of the unemployment forecasts – from 9.5%-9.7% till 9.1%-9.5%. The raise of the inflation risks isn’t also expected in the near-term, and that certainly affords no grounds for expecting the quick stiffening of the monetary policy. The current news set is going to demonstrate the weekly payrolls statistics, which is forecasted with the shortage of the jobless claims for 5 thousand and the probably advancing industrial activity in Philadelphia. The US Dollar is most likely to keep itself under pressure due to its yesterday’s growing like a weed amidst the distinctly raising willing to fix the profit. At the same time, the ranging trading is also probable next to the yesterday achieved degrees.

   The rumors and based on them presumptions that the European Central Bank might take some measures aimed to put a bridle on the Euro’s sagging provided the support to the common currency, and it fixed more than 200 points of gain to the “buck” at the former session. At the same time, the reports that the German fiscal regulator had made a decision to forbid the fiduciary short sales of the Euro zone’s debt obligations, increased the concerns and made the investors sell the Euro. However, it was only in the beginning of the trades: the later interventions of the Swiss Central Banks jump-started advance to the currency cross of EUR/CHF, and certainly to the pair of EUR/USD, of course. The tension was lessened also due to the message that on May, 21 the German Bundesparliament would vote for the Germany’s inflow up to 147.6 Billion of euro into 750 Billion of euro general rescue plan worked out by EU and IMF. There was published no significant economic statistics. That’s why the political component was leading in the news background. Moreover, the announcements of the German Bundeskanzler A. Merkel, who said: “If we don’t defend the Euro, we’ll have extremely unpredictable consequences”, and further “There will be no common Europe without the Euro”, also favored the lessening of the tension. Today the news tape will be lean again: the only German producers’ prices index (PPI) for April will be represented, which, by the way, is predicted with an essential advance, 0.6% m/m and 0.4% y/y, since after 0.7% m/m and -1.5% y/y. Certainly, it’s favorable for the common currency. Meanwhile, the Euro’s further prospects are seen as maintenance of pressure on it, as the market’s ignoring of the information about the EU-IMF stabilization system creation and also the negative response to the ECB decision of intents as for the intervention into the debts’ market encourage the exact expectance.

   The maintained concerns as for the tax-budgeting and economic branches of Great Britain reasoned the continuation of the GB Pound’s sales in the beginning of the last day. Later on, however, the situation leveled and the trades were carried in the tideway of generally optimistic mood based upon the rumors about the possible intervention against the US Dollar and also amidst the actual Swiss National Bank’s intrusions into the market. As a result, the GB Pound fixed more than 100 points of gain to the “buck”. The yesterday publicized minutes of the May meeting of the Committee for the Monetary-Crediting Policy of the Bank of England stated the consentaneity of the Committee’s members as for the political matters – the voting for the maintenance of the key interest rate and the volume of the quantitative softening program at the previous levels was unanimous, 9 affirmative votes. However, the inflation issues arouse some clash of opinions among the BoE functionaries. That probably means the taking of austerity measures, and it’s obviously taken into account by the market. Meanwhile, neither stiffening nor changes of the British regulator’s position in general will obviously take place until the new state authorities represent their outlines concerning the tax-budgeting policy. The April data on the retail sales in Britain are going to be published today. The indicator is predicted to show the advance, 0.2%m/m and 1.8% y/y. These figures are not so impressive as in the former period, 0.4% m/m and 2.2% y/y. That information, especially the annual decrease, may afford grounds for disappointment and make pressure on the Sterling. At the same time, as it seems, no new local extremes are going to be marked during the current trades. The trading is going to be carried ranging.

   Despite the high profitable currencies strengthened at the previous session, the Japanese Yen fixed the gain to the “buck” reasoning the presumptions that the inclination to risk is not of enough overall character to make it possible increasing the carry trade. The apprehensions that the European tax-budgeting troubles distinctly decrease liquidities at the financial markets obviously encourage the investors to the tactics, which keeps the Yen as the most attractive asset. The recently published economic data marked the increase of the manufacturing in Japan in March for 1.2% in comparison with the former month, and for 0.3% to the initial estimation. The components of the statement gave a handle for long-term optimism as the deliveries grew up for 2.0% m/m and the resources lowered down for 1.6% m/m, and the capacity utilization index increased for 0.6% m/m. The data, which have already been published today, added to positive attitude to the economy of Japan as the GDP runup for the 1st quarter made 1.2% q/q and 4.9% y/y – that is worth than expected, but better than previous values. The Japanese currency is strengthening during the current session, and that will obviously go ahead its advance to the US Dollar in the forefront of increasing uncertainty.

Analysis prepared by:

Arkady Nagiev
Forex4you analyst