An attempt to renew pressure on the dollar was observed in the early session on Thursday and it was a success, having received su pport based on the positive data from Europe. In Britain the price on the housing market has risen and on the continent the improved value of Purchasing Managers' Index (PMI) has become apparent. Nevertheless, the risks associated with the debt crisis and expectations of a report on labor have prevented the investors from the large-scale sales of the “green” currency and in the afternoon session the dollar returned the lost ground, fixing “profit” on all its main “opponents” during the day. The pressure on the yen continued against the background of the political uncertainty. In addition, the support of the Bucks has been based on the data on its own economy and the Fed top managers’ speeches. In his speech B. Bernanke has not mentioned the issue of monetary credit policy so that he paid more attention to the need of increased lending in the small businesses, the head of the FRB in Atlanta, D. Lockhart and the FRB President in Kansas City, T. Hoenig, showed the “hawk” attitude, stating the need to start raising the interest rates. Moreover, Hoenig said that the federal funds rate should be at the level of 1% by the end of summer. The statistics publication demonstrated the growth of activity in the non-production sphere in the USA in May at the same rate as in April. The report of the Institute for Supply Management (ISM) showed the Purchasing Managers Index (PMI) for the field at the level of 55.4, which was also observed in April and March.The forecasts expected more - 56.0. It should be noted that the index of the new orders fell to 57.1 from 58.2, but the index of employment in May rose to 50.4 from 49.5. There has been growth in the employment in the private sector - according to the consulting firm ADP, jobs in May increased by 55 thousand while the analysts expected an increase by 75 thousand. However, these April data have immediately moved upwards by 2 times - up to 65 thousand, whereas previously reported an increase by 32 thousand. The week-long employment has also raised - the number of the initial applications for unemployment benefits fell more than forecast - at 10 thousand up to 453 thousand, when it was forecast at 5 thousand. The increase was noted in the volume of the industrial orders in April, this indicator increased by 1.2%, although, it was lower than expected - +1.7%. In general, the statistics showed a positive trend that impressed the market, raising the popularity of the dollar. Today's news background, as you know, gives a reason for serious reflection and, perhaps, for dynamic actions - a report on the U.S. labour in May is being expected. The forecast promises a serious positive growth involving +500 / 510 thousand new jobs outside the agriculture and reducing unemployment by 0.1% to 9.8%. Any deviations in one direction or another can be adequately reflected in the positions of the U.S. currency.

   The growth of the euro, observed at the beginning of the last session, was short-term, the market returned to the sale of the single currency and took it back to the area of the annual minima by the end of the session on Thursday. The data from the EU noted the improvement in the service sector activity of Germany and of the Euro zone as a whole in May, and that was the only supporting factor for the euro – the RMI in Germany rose to 54.8 from 53.7, while in the Euro zone - to 56.2 from 56.0. The publication of the retail sales data in April showed the sharpest monthly fall of the indicator. The sales in the Euro zone fell in April by 1.2% compared with March and by 1.5% in the annual comparison. This proved to be much weaker than the forecast promised – the sales growth by 0.1% m / m and a decrease by 0.2% y / y. Of course, such dynamics has not given a proof to consider economic recovery being sustainable and stable, although, the March data were revised with the potential for growth. According to specified data, the monthly increase was 0.5%, while annual growth was 1.3%. Today's news will show the results of the regular estimation on GDP for the Euro zone in the 1st quarter and it is assumed that the rate will remain at the same level: 0.2% / K, 0.5% y / y. Any changes for the worse, of course, will add a negative attitude to the euro and will raise the pressure. The risks to the euro may be added by the G-20 meeting of the Finance Ministers and Central Bank Authorities, which, as we know, started in South Korea. Evidently, J. - C. Trichet expects to be interrogated at the summit. If the Head of the ECB does not convince his colleagues in the reliability of the single currency, it is difficult to imagine what will happen when the central banks and the sovereign wealth funds having billions of the euro in their reserves, will start its sales.

   Good performance in the economy of the “islands” and the optimism that has been preserved from the information about the collapse of the merger acquisitions of the insurance companies supported the pound earlier in the session and it demonstrated an increase against the dollar. The housing prices in Britain rose in May compared with the previous month. According to data from the Nationwide, the price index for housing rose in May by 0.5% compared with April and by 9.8% compared with May in 2009. The forecasts promised that the prices in May were to grow by 0.6% m / m and 9.9% y / y. The increased activity was recorded in the basic area for the UK economy - the service sector. In May, it has been observed a more significant rise than in April, the PMI for the service sector in the UK rose in May to 55.4 against 55.3 a month earlier. Nevertheless, the outcome of the day in the currency market was still dominated by the dollar. Expectations of a report on the U.S. employment, good data on the US economy and the Fed's functionaries’ hawkish tone provoked investors be more pessimistic with regard to the pound, and besides, the continuing uncertainty about the successful operations of the British new government does not give reason for the sustainable long positions on the pound. An important statistics from the UK is not expected today and the pound will be under the influence of the external factors and, moreover, the information from the U.S.A., containing a very interesting and important data for the market. 

   The yen remained under pressure at the last session and this, no doubt, was due to political instability in the country related to the resignation of the Prime Minister. The investors awaited the results of the upcoming elections on Friday and a high chance of Minister of Finance, Kahn, to become a successor of Hatoyama had the currency of Japan under pressure because Naoto Kan is known as a supporter of the weak yen. As it is known, the assumptions of the market have not been in vain. Today, the ruling Democratic Party of Japan has chosen N. Kahn as its new leader and it actually gives him the post of the Prime Minister. Obviously, the position of the yen will remain under the influence of the political component and it means that the Japanese currency is likely to be subjected to pressure. At the same time, we can not ignore today’s specific news as the report on labour in the United States could make major adjustments in the balance of power in the market.

Analysis prepared by:

Arkady Nagiev
Forex4you analyst