The former week turned out to be volatile enough. The political news was the main influencing factor still yet, though some times the investors went by the currently published economic statistics. The concerns about the national debts’ troubles in the Euro zone’s countries are still the mainstream and so mainly support the US Dollar. The rumors that China intends to cut down its Euro reserves gave a handle for massive purchases of the “buck”; however, the following refutes pressed on the American currency on the contrary. The “greenback” also got some support due to the reports about the Spanish crediting rate’s downgrade. Moreover, the information about the collapse in one of the deposit banks of the country disturbed the market and so sidetracked interest into the currency shelter, which the US Dollar is. During the optimistic splashes the investors’ willing to fix the profit as for formerly opened positions in favor of the American currency also provided the raise of pressure on the US Dollar. As concerning its cross to the GB Pound, the US Dollar’s advantage was based upon the ambiguity due to newly emerged state authorities firstly, and then also to their swift intents to join in a campaign against the budgeting deficit, what in its turn threatens the slowdown in the economic recovery. The mood of the United States financial top-management’s speeches was also favoring the US Dollar, because the Head of the FRS of the USA B. Bernankey slightly dejected the spirit of the investors, which betted to the “buck”, as he conveyed a message to the swaps’ agreements intended to provide the banks with the Dollar liquidities were not endless, but a temporal measure. As a result, the US Dollar surely “triumphed” another time in its confrontation to the Euro, fixed neutral to the GB Pound and slightly won to the Yen. The statistics on the US economy regarding the significant indicators provided some disappointment at the market. The second estimation of GDP for the 1st quarter stated the increase for 0.8% q/q, though it turned out to be worse than previous estimation and also for 0.1% below the predictions. It was 3.0% after previous 3.2% and also compared to the expectances of 3.4% in the annual comparison. The long-lived goods’ orders grew up in April for 2.9% m/m, but due to the transportation branch only – excluding that the indicator states -1.0%. The ISM indexes sank down in the areas of FRS Richmond and Kansas-City. The same was also seen as for Chicago PMI, despite that the general result maintained within the positive sector. The data of S&P/Case-Shiller stated the breakdown in the increase of the home prices in the US mega cities, as there was a sagging for 0.1% m/m in March. However, the April real estates sales were more optimistic – the raise of ready home market’s purchases summed up to 7.6% per month, while it was +14.8% at the primary one. It might be explained with the households’ activity in the anticipation of the first dwelling purchasing stimulation program’s expiry. The program expired in the end of April, so the activity will probably start to downgrade. The hopes for the rapid increase of payrolls failed to come true, because the weekly statistics of the preliminary jobless claims goes ahead stating 450/460 thousand. However, the consumer sentiment stays high and even upturns in accordance with the information of the Conference Board and the University of Michigan. The news of this week is quite voluminous and important. It’s reasonable to emphasize the manufacturing purchasing managers’ index (PMI), which is predicted decreasing in May and Institute of Supply Management index (ISM) for the services, where the increase might be on the contrary, among the published data. The outstanding realty sales deals will probably state a nice raise in April amidst the growth of both the primary and ready homes’ sales. Furthermore, the industrial orders will also be interesting as they’re predicted upturning. Though, the main attention of the investors will be focused on the employment data again. The US Main Labor Report is expected to demonstrate the massive increase of the Nonfarm payrolls in May, about 450-500 thousand. If nothing evidently negative for the US Dollar is publicized the forecast of the kind may determine a sound support for the “greenback” at this week, even despite the fact the lion’s share of the raise is due to the population census, which is currently held in the USA.

   The former weekly results stated the investors’ attitude to the Euro changed not in the least, as it might appear to be thanks to the example of the pre-former week, when the impressive advance to the US Dollar had afforded grounds for suspecting the probability of the trend’s change. The common currency turned out to be under pressure again and completed the trades loosing to the “buck”. The only day – the former Thursday – was remarkable for the “Bulls” gain at the Euro thanks to the information from China concerning the PRC authorities didn’t withdraw from the Euro denominated assets and didn’t intend to cut down their volumes. The Euro’s purchases were seemed to be caused by this currency’s comeback till its annual minimums, and that greatly raised the attractiveness of the profit fixation. The rest of the days of the previous week were negative for the Euro. The Euro’s sales were provided by the reports from Spain about the bank of deposit’s default, and also the Fitch Agency’s report about the downgrading of the crediting rate for a point, till AA+ rate in this country. These and some other events reasoned the pressure on the common currency, and so, the weekly trades’ result gave no hopes for the probable change of the trend. The Euro zone’s countries invoked the solving of the matters concerning the shortage of their budgeting deficits, and the Spanish Parliament approved the extra curtailing of the state budget for 15 Billion of euro for the current year and the next one. There wasn’t much data on the Euro zone’s economy. The former week was shorter for the majority of the EU countries by reason of Trinity Monday. The industrial orders grew up for 5.2% in March in the Euro zone, while the German exporting prices increased for 3.0% y/y, and the importing prices up-rocketed till two recent years’ maximum in the same country. At the same time, the consumer prices rose up from 1.0% y/y to 1.2% y/y in the largest European economy. The consumer sentiment worsened in Germany as the GfK advancing sentiment index decreased from 3.8 to 3.5 for June. This week much more significant data on the Euro zone economy are going to be published than during the previous one. The second estimation of GDP for the 1st quarter is expected to remain unchangeable compared to the previous; the manufacturing sentiment index is predicted upgrading in May both all over the Euro zone and in Germany in particular. The data on the German unemployment will most likely show further slight decrease of the jobless number in May, though the unemployment rate will still remain unchangeable. The raise of the negative for the Euro background, which occurred last Friday thereupon the downgrading of the Spanish rating, will probably cause the continuation of the Common European currency’s sales. That in its turn suggests setting mind on the high probability of sagging to the new minimums of the EUR/USD cross.

   Likely to the Euro, the British Pound was also sagging down the greater part of the previous weekly session; despite all that, it looked stronger to the “buck” pressure, than the common currency. The “cable” had a real possibility to fix its gain to the US Dollar summarizing the weekly totals, because the optimistic tune of former Thursday helped the Sterling to neglect the losses of former 8 trading days. However, the last session (i.e., last Friday) integrated its adjustments, because the announcements of the new British Prime-Minister D. Cameron, concerning the Government might favor the maintenance of the low interest rates for longer period by means of national budgeting deficit shortage, got back the Sterling under pressure and sank down into the sector of the negative result to the “buck”. The former weekly news was behindhand in intenseness, while the essential indicators remarked multi directional: the second estimation of British GDP turned to be better than previous; the quarter economic increase was 0.3%, though there was an annual decline for 0.2% meanwhile, despite the former reports of +0.2% q/q and -0.3% y/y. However, the Confederation of the British Industries (CBI) disappointed in May due to its statement of the serious crush down of the retail sales, as the market has seen -18 instead of predicted +13. The consumer sentiment indicators also turned out beneath the mark, because the GfK statement showed the May sagging to -18 since after -16 and alongside to the expectances of -15. The news of the present week represents the data on the economic activity in Great Britain. The slowdown in the British manufacturing activity is expected, while the services’ activity is presumed more rapidly raising; finally, the development sector is also predicted retarded, just as the manufacturing. The real home market is presupposed to demonstrate the speedup of the annual price increase again, though the monthly growth will be more restricted. To say it in a word, the economic statistics foresees no negative for the Sterling, and the GB Pound may get some support. However, while taking into account the massive cut down of the state expenses, the economic growth’s prospects are presented in lurid terms in the “Isles”, and that certainly reasons the maintenance of the “bearish” climate concerning the GB Pound.

   The trading results at the USD/JPY cross showed the US Dollar’s advance. However, it’s difficult to take that as a sign of raise of the inclination to risk at the market. Obviously, the chances that the Japanese government might agree for the steps of the Yen’s direct sales all the same, urged caution at the market. Moreover, the expectations of the US Dollar’s hardening early than anywhere else give a handle for staying with the American currency. The current Japanese economic situation remains unchangeable, and the deflationary trend goes ahead showing endurance. The trading balance was in surplus in April, though the tempos of the export annual increase retarded, the prices keep downgrading, because the corporate services fixed another decrease for 1.5% m/m, and the consumer prices, excluding fresh products, tumbled as well. The unemployment suddenly increased for 0.1% in April, but the retail sales grew up for 0.5% in April as compared to March and for 4.9% against April 2009. However, the households’ expenses in general surprisingly sank down, -0.7% y/y. The long and the short of it is, the indicators pointed at the economic prospects weren’t far from being seen positive, but the steady export increase gladdened and gave hopes for the positive alternations. Not much economic news is planned for this week in Japan, and the main part of it’s going to be published today. The manufacturing data, which have already been represented today, showed 1.3% m/m in April, whereas the increase was expected for 3.0% m/m thereupon 1.2% m/m previously. The purchasing managers’ index in the manufacturing (PMI) stated the raise to 54.7 in May. The April average incomes grew up for 1.5% y/y. The advantage was fixed in the development as the recent developments increased for 0.6% y/y; though, the analysts’ expectances resolved themselves to the raise for 6.5% y/y. However, the development orders sagged down for 25.0% y/y again. Later on this week the capital expenses data are going to be publicized, where the annual loss’ shortage is presumed to be seen, and also the statistics on the money supply, which probably incurred constriction in May, and that in its turn doesn’t encourage the forecasts of crediting improvement. As concerning the Yen’s prospects, it’s possible to notice that the expectations of rapid stiffening from the side of the US FRS will go ahead playing an important part in the confrontation between the Japanese currency and the US Dollar, and that certainly reasons the high probability of further Yen’s decline. The forecasts concerning the US labor market may also greatly influence the Yen as the foreseen increase of this sector is able enough to provide the implementation of one of the market tactics – the US Dollar’s purchases against the Yen basing upon hearings.

Analysis prepared by:

Arkady Nagiev
Forex4you analyst