The first summer week stated no changes at the currency market. The US Dollar keeps its popularity, while the Euro is the most sold-off among all majors. The cause of the negative attitude to the Euro is still same i.e., the concerns about the national debts of the Euro zone countries, which are sustained by such aggravating news as, for example, potential 200 Billion of euro losses in the European banking sector. As most often, the GB Pound was the steadiest to the US Dollar, as the first was supported by the economic statistics and information about cancellation of the M&A deals as for the insurance companies, which could instigate the Sterling’s massive sales. The “mushroomed” GB Pound even managed to keep some part of the positions, which were gained to the US Dollar, and completed the week in profit. As concerning the Yen the political situation in Japan and following period of ambiguity were guilty in the losses of the Japanese currency. As usual, the data on the US economy were multidirectional. The last week published Labor Part attracted most of attention as it appeared worse than forecasted – 431 thousand recently set Payrolls alongside to the expected more than 500 thousand. Though, frankly speaking, the main reason of such a positive tendency was the state recruitment for census, just the same as in the former month: excluding this rise the number of the new Payrolls would be about 20 thousand. As a result, the unemployment curtailed from 9.9% to 9.7%, but it may be an impermanent achievement, of course. As a consequence of this publicizing, the investors hurried to departure out of risk, and the US Dollar gained more to the European currencies, but lost to the Yen. The rest of information demonstrated both the advance and sagging, as mentioned before. The US manufacturing orders showed the monthly increase for 1.2% in April for the eighth month running already. However, the purchasing managers; index wasn’t so optimistic in the regions; for example, the Texas stated the decrease of this indicator from 21.1 to 2.9 following the report of FRB Dallas. The all-American ISM index for the manufacturing also lowered down a little, although the activity in the services has been staying same for three months already. The expenses in the development branch showed a confident raise for 2.7% m/m in April, which is certainly due to the expiration of the house purchasing stimulation program in the end of April and the relational haste of the Americans to take advantage of it. The same was the cause for the growth of outstanding real estates sales transactions for 6.0% m/m and 22.4% y/y. The prospects in this branch are far from being magnificent as the sales won’t rise without benefits. That’s why the fall down is probable in this area. Furthermore, the sagging in the crediting is still being observed, which caused by the 8% annual reduction of the money supply. By the way, the data on the consumer crediting, which are going to be represented during this week, probably, even today, may also prove it, as they’re predicted to state no positive dynamics for April. Besides, the May retail sales, which are expected increasing, the April results of the foreign trading, where the deficit’s increase is predicted, and also the FRS report “The Beige Book” may be considered as significant among all the statistics going to be represented during the next five days. The active stand of B. Bernankey promises the respectable political background to the weekly trades, because as many as three speeches of the Head of FRS are planned. Most likely, the US Dollar will manage to maintain its leadership during this week as no negative should come from the macro statistics; moreover, the political component may add to the support by means of the currently observed raise in number among the FRS functionaries advocating the stiffening of the policy. These presumptions will be relevant if certainly nothing special and unexpected happens.

   The Euro goes ahead holding the limelight as the assets, which ought to be disposed. The causes are still same, though with some refreshing additions – the information that ECB was purchasing the French Bonds added to the already usual apprehensions as for the national debts in the countries of the Southern Europe, and that in its turn instigated the hearings about the short probable downgrading of this country’s rating. Moreover, the news about the intents of the National Bank of Iran to cut down its Euro reserves for 45 Billion and so convert them into the US Dollar and gold also disfavored the common European currency. Certainly, the ECB report of the financial stability didn’t raise the popularity of the common currency as it brought the data on possible write-off bad debts within Euro zone banking system both in the current and next years in amount of 195 Billion of euro. The ECB infighting are strengthening most likely as the Heads of the National Banks of Germany and Italy A. Weber and M. Draggi further insist on the necessity of quick curtailing of the ECB T-Bonds redemptions program, because it threatens the stability and greatly increases the inflationary risks. Of course, the economic statistics made no influence at the market due to such environment, though it attracted attention all the same. The next, second, estimation of the Euro zone GDP coincided to the advancing variant of the quarterly comparison i.e., the growth for 0.2%, and better per annum, because there was a raise from previous +0.5% to 0.6%. The rest of news was both positive and negative. The German machine building orders stated the runup for 36% y/y in April. The purchasing managers’ indexes (PMI) were increasing, except for the Euro zone’s manufacturing, where a slight slowdown was stated. The inflationary raise is currently observed as the transfer prices up-rocketed in all EU large countries and made +0.9% m/m and +2.9% y/y in the Euro zone in general. Certainly, decrease of the retail sales in April for 1.2% compared to the March value and for 1.5% y/y wasn’t a surprise against such a background. The recently represented data on employment were remarkable for the unemployment raise in the Euro zone till 10.1%, despite the sudden improvement of this indicator in Germany. This week not many data on the EU economy are going to be published, the most important one will be the anticipatory ECB meeting dedicating to the interest rate. As expected, the key interest rate will be kept at 1.0% again. However, the attention will mostly be focused on the press-conference of J.-C. Triche, where special priority will be given to the Euro zone stabilizing measures’ package and the resolution about the redemption of the troubling countries’ T-Bonds. Besides, the April data on the German manufacturing and processing orders are going to be published. The German consumer price for May will be also represented, probably with the upturn for 0.1% m/m and 1.2% y/y. Again, the statistics is unlikely to provide the change of the attitude to the Euro. The tax-budgeting troubles of the EU countries is still the main influencing factor – inasmuch as no positive changes are currently observed here, the Euro sales will most likely go ahead.

   The British Pound was supported in the first half of former week and was gaining to the US Dollar due to the information about the fail of the deal concerning the British Prudential’s purchasing of the Asian AIA and also reasonably good economic data from the “Isles”. Later on, however, the British budgeting troubles and the doubts that the recently emerged government will manage to deal with these problems smoothly for the economic recovery processes reasoned the renovation of the “cable” sales. These events became a reasonable ground for cease of long keeping of previously opened long positions as for the Sterling and also carrying out of the profit fixation. The British home prices went on upturning in May, however, the tempos begin to slowdown, because following the data of the Nationwide the hoe price index turned out to be not as high as forecasted. The mortgage claims go ahead increasing, though the crediting sector is still dull, and so there’re no hopes for the confident increase here still yet, because the decrease of the crediting within M4 aggregate grew up for 0.4% per month. The Council of Mortgage Lenders revised downgrading their forecasts for the current year. The cancellation of the governmental stimulation will never raise the households’ intents of the mortgage expenses. The outlines of the recently-emerged Cabinet headed by D. Cameron concerning the expenses curtailing arouse apprehensions as for possible worsening. The last week published data on the business activity in different economic branches of Great Britain demonstrated positive results, however, the achievements of the key sector, the services, turned out to be more limited in success than predicted. That sets mind on the presumptions of possible slowdown in other branches as well. It’s realistic enough due to scheduled shortage of the state expenses from the side of the government. As for the events of the current week, the most important will be the meeting of the Bank of England, where another discussion about the prospects of the monetary-crediting policy will take its place. Both the interest rates and the volumes of the assets redemption program are foreseen to remain unchangeable. Moreover, the April data on the processing industry with probable monthly increase from no forth will also attract attention. The April data on the foreign trading are expected with the deficit curtailing. The manufacturing inflation data may disappoint the “Bulls” concerning the Sterling as the forecasts expect the evident retard of the price increase, just like it was foreseen by BoE in its recent inflationary report. Obviously, the Sterling’s prospects will remain negative, though its positions will be steadier than the Euros’ ones.

   The outburst governmental crisis weakened the Yen. The resignation of the Japanese Prime-Minister Yu. Khatojama bore the period questions and ambiguity. At the same time, firstly, the hearings that the new Prime-Minister would become the former Minister of Finances N. Khan, who is famous for its stand as an advocate of the cheap inner currency in favor of the export, and secondly, the real state of affairs pressed upon the Yen. Strictly speaking, in the last day of the week the Yen got back some part of its positions lost to the US Dollar, moreover, the investors would like to fix the profit as for previously open positions for the US Dollar. As concerning the economy, the total investment curtailed in the first quarter in Japan: they decreased for 11.5% y/y i.e., more than predicted -9.5% y/y. The manufacturing grew up for 1.3% monthly and 25.9% per annum in April. That states the slowdown as it was +31.8% y/y in March, but it’s worth recalling the collapses in March 2009. The absence of steadiness is observed in the development: if March developmental orders showed +42.3% y/y, in April it was -25.0% y/y. The Japanese wages for April and the raise of the purchasing managers’ index (PMI) in May aroused some optimism as the latter indicator rose up to the maximums of the autumn of 2006. There’s going to be much economic news from Japan this week. Not longer than today the statistics of payment balance in April will be represented, and the surplus curtailing is presumed to be seen. The further squeeze of the money supply is also presumed as this indicator is forecasted slightly decreasing for 0.1% till 2.8% in May – obviously, the crediting goes ahead being dull. Later on the machine-building orders in May will be published with probable increase. However, the most important news should be the pronouncement of another estimation of GDP for the 1st quarter, because the forecasts see the decrease of the result coming from previous 4.9% to 4.2%. Nevertheless, as it seems, the political component will remain the main influencing factor for the nearest prospects. Certainly, it will be directed by the announcements of the new Prime-Minister, that’s why, it’s necessary to monitor information carefully and attentively.

Analysis prepared by:

Arkady Nagiev
Forex4you analyst