The Tuesday session may be divided in two parts – both by times and market climate. The first half was predominated with pessimism, but the second one had optimistic priorities. The US Dollar was strengthening to the European majors in the beginning of the day, at that the common currency was under extra pressure and marked the new annual minimum to the “buck”. The support to the “greenback” was provided by the very same apprehensions concerning the national debts’ default. Moreover, duller than expected Chinese data added to it, together with the Israel geopolitical environment and neutral position of the Reserve Bank of Australia, this remained its key interest rate at the former degree of 4.50%. However, the situation rapidly changed in course of the American session already. Both the Euro and GB Pound regained their before lost positions, but the Yen lost to the “buck” on the contrary. That occurred due to more favorable than expected US data, which gave a handle for opinion that the global economy went ahead recovering and so reasoned an impact for raise at the stock market. By the time the information appeared that the Bank of Canada had raised its key interest rate for 0.25% till 0.50% and so “added fat into flame”. The US Dollar completed the day with loss both to the GB Pound and Yen, but with the gain to the distressful Euro. Though, the European currencies were demonstrating the tumble till the end of the day – that smoothed the situation to some degree and so established in opinion that the American currency maintained its power and its comeback to leading positions would occur in the closest time. The US economic statistics was reasonably nice indeed: the Institute of Supply Management (ISM) reported the May decrease of the manufacturing index to 59.7 against 60.4 in April and 59.6 in March, though this result was better than predicted 58.7. The April data on the development branch’s expenses also supported the positive statistics forefront as they suddenly grew up for 2.7% m/m till 869.1 Billion of dollar, whereas the forecasts predicted the maintenance of the former degrees unchangeable. However, the regional information disappointed, because FRS Dallas reported the decrease of the general purchasing managers’ index (General PMI) to 2.9 in May compared to 21.1 in April and forecasts of 18.6, while the March value was 7.2. Frankly speaking, the indicator’s compounds, which make possible to speak about the prospects, were positive as the new orders index remained at 15.8, and the employment index rose up to 11.5 compared to 9.8 in April. The today news isn’t intensive, so the market’s attention will be focused on the data on outstanding real estate sales deals in April – the increase is expected for 4.8% m/m here, though the value will most likely be much higher as the both the primary and ready homes markets’ sales were massive due to the tax benefits’ expiration. As mentioned above, however, the US Dollar will get back its leading positions as no negative is expected, and the labor market’s desirable forecasts will add to the interest in the “greenback”.

   The Euro sagged down at the Tuesday session and noted the new annual minimum to the US Dollar – it was the support at 1.2110/15 this time. The reasons of pressure on the Euro are still same: the concerns as for the national debts. The disturbances over the European banking system became an extra factor thereupon the announcement of probably large wiping out for almost 200 Billion of euro in this branch. By the way, the rumors that France may also be included into the list of the countries under threaten of rating downgrading might also become an additional factor of pressure on the Euro. Quite possible, the cause of the Euro rates tumble is the debates among the ECB top-managers about the Bonds Purchasing Program. As stated by the Member of the ECB Governing Council E. Nowotny, this program could last during undefined period of time, until the financial stability wouldn’t be guarantied within the unity. As known, however, both J.-C. Triche’s successors-nominees at the position of the Head of ECB – a German Weber and Italian Draggi stand against that and the program as well, because they demand the quickest possible curtailing of the T-Bonds’ purchasing at the market with aims to avoid the inflationary splash and other negative consequences. The Euro zone’s economic data were represented with the information about the employment. The unemployment rate increased within the Euro zone till the highest possible degree in April and made up to 10.1% against 10.0% in March, while the maintenance of the former 10.0% degree was expected. However, the state of the German labor market improved, though it took place in May. The jobless number curtailed for 45 000 in spite of 17 500, while the unemployment rate lowered down till 7.7% from 7.8% in April. The slowdown in the increase of the manufacturing activity was observed within the Euro zone as the purchasing managers’ index (PMI) for the manufacturing sagged down to 55.8 in May from previous 57.6, while the forecasts presumed 55.9. The progress in this indicator was also observed in Germany – here PMI noted 58.4 just after 58.3 and the prophesied maintenance of still same 58.3. There is little news about the EU economy today. The producers’ prices index (PPI) for April is going to be published. It’s expected increasing for 0.7% m/m and 2.6% y/y. This information actually makes no change, though it may provide a slight support to the Euro, but for a while only.

   The GB Pound was the strongest currency at the yesterday trades. Even being under pressure of the first half of the session the Sterling didn’t get great losses to the “buck”. During the second half of the day the British currency advanced and completed the day with the steady profit both to the US Dollar and other majors. The support to the British Pound was provided by both the market optimism and the information that the outlined deal of the British company “The Prudential” purchasing the largest Asian Life Insurance Department of AIG in amount of 35.5 Billion of dollar may fail to occur and so be indefinitely postponed. The data on the “Isles” economy also provide some support, because the first part of the British business activity picture was positive and stated the confident growth, just like to April. The purchasing managers’ index (PMI) for the British manufacturing remained in May at the April degree of 58.0. The forecasts predicted the downgrade of this index to 57.5. Today the publication of the business activity statements will go on. The PMI for the development branch will be represented. However, it’s expected decreasing from 58.2 to 57.8. The rest of the information is expected to be positive, as the number of the approved mortgage loan appeals may rise up to 49.5 thousand in April from 48.9 thousand, and the consumer crediting – for 0.7 Billion just after +0.3 Billion of pound before. At the same time, the only dynamics of the M4 money supply causes disturbance as squeezing is possible here.

   As usual, the Japanese currency was traded in terms of the situation, which determines the investors’ inclination to risk. In the first half of the trades the Yen was strengthening, while negative mood ruled the market, and the latter escaped into currency shelters. But the second half of the trades was remarkable for the Yen’s sales as the cheering up caused the optimistic splash at the stock markets. No economic data were published yesterday. Today nothing significant is going to be published as for the economic information as well. At the current moment, the political environment is in the focus of the attention in Japan, because there’s threaten for the global investors’ attitude at this conjunction as the Prime-Minister Yu. Khatoyama might be forced out to hand in resignation due to his breaking of election promise to take away the American military base. The Yen’s current sagging might probably be caused by the market’s taking into account of the prospect of the kind. Nevertheless, the rate of the willing to risk will still stay the main driver for the Yen. That’s why the prospects of the Japanese currency should be considered by reference to the current situation exactly.

Analysis prepared by:

Arkady Nagiev
Forex4you analyst