The US Dollar was mainly sold-off again and so fixed losses to all the majors summarizing the day. Obviously, the optimistic climate spread from the former week to the current session and caused the high degree of the inclination to risk in the first trading day of the week. However, not only this provided the steady market optimism, but also the good data on the European economy, especially concerning the Euro zone, added to the grounds for considering the economic recovery as stable and raised hopes for the positive outlook. Besides, the decrease of the “buck” popularity was probably provided by the statements of the President of FRS Saint Louis D. Bullard, who said the recently observed recovery in the US economy was still not enough for increasing the key interest rate. The “greenback” got back some of its positions, which were lost in the course of the Monday trades, till the end of the day. It happened just after the pronouncement of another downgrading of the Greek rating and rapid drop below zero of the US stock market, which was confidently advancing the major part of the trades. There was no news about the economy of the USA. Though, the today package is going to represent the whole set of the significant data. For example, the purchasing managers’ index (PMI) according to the report of FRB of New York for June is predicted to grow from 19.1 up to 20.1; the net capacity of American securities purchased by the foreign investors – Tenants In Common (TIC) in April is expected to curtail to 77.0 Billion since after 140.4 Billion of dollar previously; and finally, the NAHB home price index for June also is forecasted the same – 22.0. This information will provided neither special support nor great pressure on the US Dollar. The market is going ahead looking up to the political component. Some decrease of optimism seems to be here exactly, and that in its turn causes the slowdown of the US Dollar’s decline i.e., the high probability of starting the ranging trade with the risks of comeback to the high degree of popularity of the American currency.

   Another portion of optimism thanks to the good data on the Euro zone’s manufacturing in April pushed up to raise the cross of EUR/USD and also provided the positive totals for the Euro at the Monday trades. The investors were disappointed to some degree by the report of the Moody’s Rating Agency about the downgrading of the Greek state debts rating till the “junk” rate of Ba1. Nevertheless, the market’s response was low-key, and so, the Euro’s sales were restricted. Obviously, it was so by reason of steady forecast as for the new rating of Greece i.e., it’s like to remain unchangeable for next 12-18 months. As mentioned already, the yesterday published statistics encouraged rosy tune, because the manufacturing within the Euro zone grew up in April with the highest possible tempos. In accordance with the represented data, the indicator showed the upturn for 0.8% compared to March and for 9.5% in comparison with the analogous period of the former year. The forecasts expected less impressive picture: +0.5% m/m and +8.7% y/y only. Moreover, the March value was revised upgrading, till +1.5% m/m and +7.7% y/y from previous +1.3% m/m and +6.9% y/y. However, it should also be mentioned, this increase was provided by the largest economies of EU, i.e., Germany and Italy, whereas the manufacturing dropped down in Greece, Portugal, and Spain in April. The news, which is going to be represented today, is connected to the report of the German Institute of ZEW. The indicator will probably note the decrease of the business behavior in June, because the national debts’ crisis goes ahead suppressing, and so, the short-range plans of the European governments, including Germany, are aimed at cutting down the state expenses for them to prevent the increase of the budgeting deficits. Moreover, the April value of the Euro zones’ trading balance is also going to be published – the raise of surplus is expected from 0.6 Billion to 1.7 Billion of euro. The advance of the common European currency seems quite amazing and may go on in the short-term outlook. Though, the current advance of the Euro is disbelieved long term, because the national debts’ troubles will be further conceived as a matter of concerns. On the other hand, the ground for optimism i.e., the powerful Chinese indicators, will dwindle to nothing very soon. As known, there’re disturbances in “The Middle Kingdom” as for the possible “overheating” of the national economy, that’s why the state authorities of this country are going to go on stiffening of their inner monetary-crediting policy.

   The British Pound renewed its gain to the US Dollar and fixed more than 150 points of profit on Monday. The raise of interest in the Sterling was provided by the political factors, which overlapped the last week optimism. These factors include both the statement of the representative of the Bank of England A. Sentance about the inflationary concerns might raise a query about an extra velvet monetary-crediting policy and the reports of the recently formed British Budget Responsibility Administration, which caused the downgrade of the forecasts of net annual governmental borrowings, which expire in March 2011. This recently formed governmental Administration lowered down not only the forecast for the net borrowings for about 23 Billion of pound, but also the predictions of the economic raise from 2011. Though, the exact forecasts of borrowings’ curtailing made a great influence upon the market as they yield hopes for the budgeting consolidation. The Bank of England Quarterly Bulletin was published as well: it noted the significant shortage of the business investment. However, the main message of this paper resolves to the stating of the steady inflation, and that might also supported the Sterling. By the way, the clarifying of the inflationary matter with its prospects and possible BoE measures by this reason may be represented today – when the Bank of England Economic and Inflationary Report will be published. Besides, the publication of the data on the consumer inflation is also planned for today. The consumer price index (CPI) is expected with the increasing tempos’ slowdown in May, 0.4% m/m, 3.5% y/y thereupon 0.6% m/m, 3.7% y/y in April. The core indicator may also show lower degree, just the same as the retail price index, which is predicted with the growth for 0.3% m/m, 5.0% y/y since after 1.0% m/m, 5.3% y/y. no negative is expected for the GB Pound. That’s why the further increase is quite possible, if certainly, no categorical statements of denial the stiffening of the monetary policy will come from the inflationary report. At the same time, the problems, which aroused before the new emerged government are quite complicated, that’s why the currently observed advance of the “cable” won’t be long most likely.

   On the assumption of the results, which were showed by the cross of USD/JPY at the Monday trades, it’s reasonable to make a conclusion about a high degree of the ambiguity among the investors. The Yen was under pressure in the first half of the Monday session amidst the strengthening of the risky assets; though it made a rapid reversal toward the strengthening in the end of the day, when the US stock venues began to collapse. That is yet more proof confirming the dependence of the Japanese currency’s positions upon the degree of the inclination to risk and also a very little influence of the economic parameters upon the Yen. Meanwhile, the publications that touch upon the economy of Japan stated the significant improvement of the mood of the great Japanese industrial producers during last three months. Moreover, the business environment is estimated much more confident by the entrepreneurs. The governmental report, which was represented on Monday, demonstrated the raise of the manufacturing activity till 10 points in last quarter, while it had been fixed 4.3 before. It might be connected to the fact that the governments of all countries take measures aimed to stipulate their own economies, and that certainly arouses the interest in the goods of the Japanese production. The decision of the Bank of Japan concerning the key interest rate has already been represented today: the instrument has been kept at the former degree of 0.10%. This very news item will make no influence upon the market, of course. All attention will be focused on the press-conference of the Bank of Japan, because of the information about the prospects of its policy, though in relation to the strategies of the new emerged state government.

Analysis prepared by:

Arkady Nagiev
Forex4you analyst