The Tuesday session was marked by the highly multidirectional volatility. The US Dollar steadily strengthened in the first half of the trades amidst still relevant apprehensions as for the Euro zone national debts and mounting tensions concerning two Korean states standing in confrontation. For all that the intention to fix the profit turned out to be stronger. That’s why the “greenback” incurred not less steady sales-offs than recent purchases and so it got back to the basics in fact i.e., the Tuesday opening prices, thereupon the American currency approached to its local maximums to the European ones. The data on the US consumer segment, which turned out to be more favorable than expected, gained some momentum to the climate cheering up. In accordance with the publicized Conference Board report, the consumer confidence index grew up to 63.3 in May compared to 57.7 in April. The forecasts predicted the advance to 58.5 only. By the way, the increase of this indicator is being observed for the third month running. The growth dynamics also resided in the home prices in the 1st quarter of this year in the USA – they added 2% to the minimums of last year, though the monthly comparison was sagging. Following the S&P/Case-Shiller report, the home price index for 10 US megacities increased for 3.1% y/y and lowered down for 0.4% m/m in March, whereas the annual raise made up to 2.3% y/y and monthly decline was for 0.5% m/m for 20 megacities. The slowdown in the economic activity growth was observed in the Richmond manufacturing, though the data of regional FRS stated the predicted results, that’s why the market never responded negatively. The manufacturing index made 26 in May against 30 in April, but its components, which determine the prospects expectances didn’t have smiling, as the new orders index sank down to 36 compared to 41 before. Concerning the current news the information about the durable goods orders and primary real estates market’s sales is worth of attention. As expected, both two indicator should have increased in April – the home sales to 420 thousand from 411 thousand in March, and the long lived goods orders for 1.3% thereupon the previous decrease of -0.6%. This information may support the “buck” as it proves the economic recovery, moreover, the home sales may turn out to be even higher-rated due to the benefits’ expiration in April, so the purchasers quite probably might hurry over buying.

   The European situation remains unchangeable. That’s why the debts troubles in some EU countries still remain fundamental concerning the trades with the Euro. The common European currency was tumbling all over the first half of the Tuesday session against such a background. Meanwhile, the force of attraction of the current profit fixation terms got the better end of the concerns, and in the second half of the trades the Euro neglected almost all its first half daily losses to the “buck”. At that, the Euro purchases weren’t even obstructed by the market hearings that ECB would like to decrease the interest rate till 0.5% urgently. It’s interesting to remark, that the Spanish government reported the budgeting deficit shortage for 18% in annual comparison during first four months of 2010 in reprisal for the IMF Monday announcement concerning the necessary radical reforms of the Spanish labor law and retirement system aiming to prevent the Greek like economic difficulties. The Ministry of Finances of Spain stated the tax revenues had increased for 4.4% during January-April period thanks to the economic activity raise and also some changes in the calculation techniques. There wasn’t published much economic data, the only new manufacturing orders for March were represented. The results showed the most significant monthly increase for almost three years as the new production orders grew up for 5.2% compared to February and 19.8% per annum in accordance with the submit data. That greatly exceeded the expectances as the forecasts amounted to the new orders should have risen for 2.5% m/m and 15.0% y/y. Just after publication the information made no impression on the investors. However, most likely it could be taken into account later as it encourages the hopes for the rapid economic recovery within the Euro zone. The today’s news set is meager again as for the Euro zone. The only GfK consumer confidence index for Germany in June is going to be pronounced. This advancing indicator promises the sentiment falling-off in the consumer segment to 3.7 from 3.8 before. As concerning the Euro’s positions, there’s a sound probability of the common currency’s sales renovation amidst the further relevant total negative attitude to it by reason of no support from the side of the statistics.

   The British Pound was cloned to the Euro – it was sagging to the US Dollar at first, but later, in the second half of the session, it manage to get back almost all losses and completed the day next to the opening prices in just the same way. The sales-offs were obviously caused by the previously published information from the emerging coalitional cabinet concerning the budgetary discipline hardening as that pretty encourages the opinion about probable greater slowdown of the economic raise. It’s necessary to note that during the yesterday sales-offs even the data on the British GDP failed to support the British currency, despite the latter turned out to be increasing, though within the predictable edges. In accordance with the next estimation, the British GDP grew up for 0.3% q/q in the 1st quarter, whereas the advance for 0.2% q/q had been announced before. The annual dynamics showed -0.2% after previous -0.3%. The compounds of the report demonstrated the upturn of the manufacturing raise for 1.2%, but the personal consumer expenses were revised to the side of decrease at the same time, from +0.4% to 0.0%, while the sate expenses increased. Today the Nationwide home price index for May and BBA report of approved mortgage appeals are going to be published within the “Isles” news set. As expected, the home prices upturned for 0.5%, while the April mortgage appeals increased from 34.9 to 38 thousand. Generally speaking, the information feeds trust to the Sterling, but for a while only. The state budget troubles and also the emerged government’s announcements concerning the approach to the solving of these problems stay the main motive power for the GB Pound and that reasons the maintenance of pressure.

   The departure out of risk amidst the relevant apprehensions concerning the current state of the European fiscal system and the geopolitical tension in the Korean peninsular caused the raise of the Yen’s popularity as a currency shelter in the first half of the Tuesday trades. The sudden sagging of the regional stock caused by the reports about the wartime readiness of the Northern Korea predetermined the climate of the kind. Later on, however, the situation leveled a bit due to the optimistic increase in the Europe, so the Yen yielded some part of before gained positions to the US Dollar and finally completed the day neutrally. There was no economic news from Japan. The today represented information stated the slowdown in deflation, and the corporative services price index slightly grew up in April, from -1.2% y/y to -1.1% y/y. The published today minutes of the Bank of Japan meeting, dated April, 30, marked the disturbance with the side effects from the monetary relief policy, and that will probably lessen the intensity of the crediting stimulation programs’ implementation. The biannual economic forecasts, which are included into the document, marked out the expectance of the inflation raise till the end of the fiscal year. The net prices are foreseen to grow up for 0.1%. If taking into consideration the Yen’s nearest prospects, they seem to point to the ranging trades’ continuation with the risk of the renovation of the Japanese currency’s advance, because the market situation is far from that state, which could be taken as steady.

Analysis prepared by:

Arkady Nagiev
Forex4you analyst