The American and British holidays impacted upon the market. The trading volume was very low by reason of closed markets in these countries; however, the volatility occurred, so the US Dollar turned out to be under pressure to some degree. The exacerbation of the investors’ inclination to risk amidst the stock indexes’ strengthening both in the Asia and Europe caused the sales-offs of the “greenback”. As a result, the European currencies fixed gains to the US Dollar, except for the decreasing Yen. Nevertheless, fussiness still stays at the market, because of the European difficulties concerning the national debts are far from being solved still yet. There wasn’t published any economic news as for the USA. Today the data of the Institute of Supply Management (ISM) will be in the focus of attention, and the manufacturing index for May can state 59.6 since after previous 60.4. Moreover, the April development expenses will also arouse interest as they’re predicted with the increase for 01.1%. The real value better than forecasted may support the US Dollar, because the market currently starts to take into consideration the information proving more rapid recovery in the USA than in some other world regions. However, the events, which also carry risks of raising pressure upon the US Dollar are also planned for today. At the current session the risk of increment of the inclination to risk comes from the Bank of Canada, which will determine the outlines of its policy and pronounce its decision later. If this institution shows its hard-line attitude the willing to risk may rise and so the “buck” will turn out to be in the forefront of the sales-offs. The resolution of the Reserve Bank of Australia was also expected with some concerns and so considered as a probable impulse to the optimistic splash, but it occurred to be neutral, because the interest rates were never raised. Meanwhile, even if the pressure on the “buck” increases it won’t be massive most likely – because of the approach of the publication of the US Main Labor Report for May, which will restrict the investors, moreover, the forecasts predict a great increase of the payrolls, the predictable raise is for 563 000.

Summarizing Monday, the Euro fixed a slight gain to the US Dollar, but the advance of the common European currency didn’t encourage opinions about the steady potential and probability of further upgrade. That has certainly been confirmed at the current session as the Euro has already lost enough the yesterday’s profit. Yesterday quite many economic indicators were published: the Euro Commission represented its monthly report, which stated the economic sentiment index of the Euro zone suddenly sank down to 98.4 in May since 100.6 in April. The like dynamics was demonstrated by the consumer confidence index, which decreased to -18 from -15 in the former month. The ECB data didn’t gladden as well, because they showed the corporative crediting decrease for 14 Billion of euro in April. That exceeds twice the March downgrade, when it was -7 Billion. The EU consumer prices stated a slight increase in May, though the inflation is still below the ECB target rate as the advance consumer price index (CPI) grew up for 1..6% y/y thereupon the growth for 1.5% y/y in April. It’s no wonder, the money supply, M3 aggregate, further curtailed amidst the crediting decrease as the first shortened for 0.1% per annum. The ECB reports that the Euro zone’s bank would suffer from great losses both in the current and following years were quite gloomy. The writing off of loans is outlined to be about 195 Billion of euro. Generally speaking, the evident absence of unanimity is currently observed among the top-management of the European regulator concerning the strategies of the monetary-crediting policy. The Head of the German Bundesbank A. Weber comes out with criticism of the ECB Assets Relief Program, while the Head of this institution J.-C. Triche is sure in the effectiveness and necessity of this measure, which is currently implemented by the European regulator. The EU statistics, which is going to be represented today, represents the essential information. The manufacturing PMI for May both for Germany and the Euro zone are foreseen within the advance estimation, 58.3 and 55.9 correspondingly, whereas the unemployment should keep the same level of 7.8% in Germany and slightly raise till 10.1% from 10.0% in the Euro zone. However, the largest EU economy may show the shortage of the jobless’ number, it’s expected -15 thousand. As concerning the Euro’s prospects, it wouldn’t be correct to suppose the investor’ attitude has changed, even despite the absence of massive sales thereupon the downgrading of the crediting rating of Spain. The pressure on the Euro will obviously stay as there’s one more factor, which determines the US Dollar advantage, alongside to the national debts’ default – it’s more rapid economic recovery in the USA and certainly the probability of alert stiffening of the monetary policy against that very background.

Yesterday there was a day-off in Great Britain. That reasoned the paucity of the economic news as for the “Isles”. Nevertheless, the Sterling strengthened to the US Dollar and fixed more than 100 points of advance summarizing the day. The general optimism, which appeared at the market, obviously escalated the willing to risk. That certainly provided the GB Pound’s purchases, and the initial impulse was imparted by the data on the British home market. The Hometrack report for May stated the home prices had been increasing for the 10th month running, the upturn made up to +0.2% m/m and +2.0% y/y. Nevertheless, the prospects of this branch are considered to be bleak. The indicator can start decreasing as the newly emerged government’s plans about cut down of the state expenses for 6.2 Billion of pound in the current year note the apprehensions concerning the probable worsening of the households’ financial state. Today the issue of the home market price will be also acute. The Halifax is going to represent the home price index for May; here the raise is predicted for 0.3%. However, the started publication of the British business activity for May will attract all attention. The initial part of it, the manufacturing PMI, is expected with sagging to 57.8 just after 58.0 in April, and that’s able enough to abate the market’s spirits, especially if the actual value turns out to be worse than forecasted.

The Yen stayed under pressure to the US Dollar the greater part of Monday. The political debates, which showed up within the ruling coalition, are supposed to be among the causes for it together with the splashing willing to risk. One of the coalitional partners, the Social-Democratic Party of Japan, decided to get out of the coalition in protest at the pact made between the Prime-Minister of Japan and the USA concerning the military base in the Island of Okinawa. The information, which has already been published today, about the volume of the originated loans for April stated the lasting of the shortage as the indicator lowered down for 3.4% per annum, whereas the previous month’s value had noted -3.2% y/y. The nearest expectations as for the prospects of the Japanese currency were connected to the raise of the willing to risk amidst the probable stiffening of the monetary-crediting policy from the side of the Reserve Bank of Australia. Though, there was no increase of the interest rates, and that smoothes over the situation to some extent. Meanwhile, the Yen’s positions are still under the threat of decline as the Bank of Canada is going to pronounce its decision concerning the interest rates a bit later. If there’s stiffening in this case the Yen will go ahead sagging.

Analysis prepared by:

Arkady Nagiev
Forex4you analyst