The explosion of optimism was observed at the last session: the US Dollar was losing to the European currencies and slightly gained to the Yen. Both the Wednesday and Thursday events obviously provided a favorable environment for the raise of the inclination to risk. The affirmed rumors about the growth of the Chinese export for 50%, the slightly upgrading revision of the Japanese GDP for the 1st quarter, the positive side of the FRS report “The Beige Book”, and finally, the increasing of the interest rates in both New Zeeland and Brazil caused the massive cheering up concerning all financial instruments, except for the Gold. The successful Spanish Bond auction added to the purchasing impulse at the stock platforms in the Europe. The like attitude was observed in the USA as well, where the American stock indexes closed green. The economic data never abated spirits as the US budgeting deficit curtailed in May compared to the value of the former year, though it’s still very extensive and makes 935.61 Billion since the beginning of the current fiscal year against 992 Billion of dollar of the same period of former year. The number of the preliminary jobless claims also curtailed in the USA for -3 thousand, till 456 thousand, that coincided to the forecasts exactly. The capacity of the secondary claims decreased essentially as well, for 255 thousand till 4 462 thousand compared to 4 717 thousand in a week before. Concerning the news, which is going to be published today, the attention should be paid to the retail sales in May, because the raise is predicted for 0.2% m/m since after +0.4% m/m in the previous period. Another interesting point will be the University of Michigan consumer sentiment index: this indicator may get 75.0, whereas it was 73.6 before. Besides, the business commodities of April will also attract some attention as the increase for +0.6% is predicted. The statistic won’t probably intrude into the development of the market events. The optimism will further be a driver most likely. That might keep the “greenback” under pressure during the current session as well.

   The Euro was on firm ground at the former session and gained both to the US Dollar and Yen. The claims that the European debt crisis would make no great influence upon the global economy and impressive Chinese economic performances made an impact to the raise of interest in the risky currencies and stock market. Moreover, there was also support to the common European currency from the side of information about the dismissal of the government’s intents to forbid the issue of the financial warrants to other countries by the Constitutional Court of Germany. The pronouncement of the ECB decision concerning the interest rate didn’t also any harm for the common currency, because the European Central Bank remained the accounting rate at the minimum of 1%. Furthermore, the Head of ECB stated the “casual” purchasing of the Bonds was going on. Besides, J-C. Triche noted at the press-conference that the interest rates “coincided to the environment”, and so, indicated that there wouldn’t be any increase of them despite the market’s hopes. Meanwhile, evidently it’s not worth of expecting their upturn till next year. Today not much economic statistics is planned for publication. Germany will represent the wholesale price index for May (forecast: +0.2% m/m, +6.1% y/y; the previous value: +1.7% m/m, +6.0% y/y); France is going to publish the consumer price index (CPI) for May as well, it’s predicted +0.2% m/m and 1.7% y/y thereupon +0.3% m/m, 1.7% y/y before. The optimistic drive may go ahead favoring the Euro’s strengthening. Though it’s worth taking into account, the Euro zone troubles still stay here; and the market always remembers it. That’s why the tiniest sparkle of negative will get back the common currency under sales-offs pressure.

   The British Pound showed a significant result at the former trades as it gained another almost 200 points to the US Dollar. The general market environment fitted the raise of interest in the US Dollar enough, as a risky asset. Moreover, no negative was expected from the pronouncement of the decisions of the Bank of England. Obviously, the awakening that nothing extraordinary has recently happened in the British economy persuaded of no necessity to make any amendments. In general, it happened actually so – the rates remained unchangeable and the volume of the State Securities Redemption Program stayed 200 Billion of pound. Though, some concerns were connected to the possible evaluation of the inflationary processes by the fiscal regulator – they greatly up-rocketed the prices in the “Isles”, so the CPI currently resides at 3.7%. By the way, this subject may be extended at the current trades as well just after the publication of the news. The producers’ prices are expected slightly decreasing at the entry, because the forecast runs about -1.0% m/m and +10.7% y/y thereupon +0.6% m/m, 13.1% y/y before. However, some increase of the producers’ prices is presumed at the exit, though slacking down. Here the forecast predicts +0.5% m/m, +5.8% y/y, whereas it was fixed +1.4% m/m, +5.7% y/y in the former period. In other words, the presumptions of the British regulator as for descending of the inflationary dynamics are probably confirmed. Besides, the manufacturing capacity for April will be represented to the market: the forecast presumes +0.4% m/m, +2.3% y/y since after +2.0% y/y, in March; and also the processing branch’s volume, which is foreseen of +0.5% m/m, +3.9% y/y compared to +2.3% m/m, +3.3% y/y before. The inflationary sentiment according to the GFK/NOP report is also going to be pronounced. It’s worthy of note that nothing negative is expected as for the economy. That’s why the Sterling may reckon upon good attitude at the market. However, the technical factors may contribute some corrections as the price has approached to the current monthly minimums, and that in its turn causes reasonable resistances for the cross of GBP/USD. Moreover, quite massive two-day advance reasons the attractiveness of the profit fixation, the more so nothing greatly changed at the market. So it’s reasonable to be careful just before the weekend.

   The Japanese currency stayed within the narrow range in the confrontation to the US Dollar and completed the day slightly yielding its positions, whereas concerning both the GB Pound and Yen the losses were great. The optimistic splash afforded grounds for slumping of the Yen as a currency shelter and also increased the number of the carry-trade deals, where the Japanese currency is allocating. There was a lot of data on the economy of Japan. Though, the main item, which mainly contributed to the optimism of the general market climate, is probably the data on GDP for the 1st quarter, which rose up for 1.2% in comparison with the former quarter, and also for 5.0% y/y. The like dynamics amidst the recovery of the global economy offers to the Japanese state authorities the possibility to heighten the forecasts of the economic growth. That has actually been done as the increase is currently resolving to the expectances of +2.0% summarizing the current year, compared to the previously pronounced estimation of +1.4%. Meanwhile, today the new Prime-Minister of Japan N. Khan has accepted the necessity of cutting down the currently increasing state debts. The English for all that is Japan is going to face the austerity of the state expenses, what will slack down the recovery tempos in its turn, of course. Obviously, it’s reasonable to foresee the dullness of the Yen on the immediate horizon against the background of the kind.

Analysis prepared by:

Arkady Nagiev
Forex4you analyst