The currency market made an evident reference at the previous session that it was too early for optimism, because the national debts’ troubles all over the Euro zone were still acute. The spread between the 10-year bonds of Germany and Spain reached its recorded maximum. That’s why the rumors spread over the market concerning Spain would seek help from EU/IMF; moreover, the negotiations about rendering aide to this country by means of the established Stabilization Fund have already been carried on. Of course, due to such an environment the US Dollar greatly strengthened to the European currencies and also slightly lost to the Yen. The next following official contradictions calmed down the market and so weakened the American currency, though, the “buck” strengthening renewed till the end of the day. Finally, the “greenback” mainly fixed the profit, excluding the positions to the Yen. As usual for the situation of departure out of risk, the currency of Japan was on velvet by all ends. The US statistics demonstrated the volatile result; however, the fund market was mainly upturning thanks to this information and so, fed a favorable climate at the currency market. The developmental affairs turned out to be worse than predicted, because the home construction activity lowered down in May. The expiration of the stimulating programs greatly worsened the home sales’ prospects, and that in its turn threw the developers into disappointment. As stated, the number of the recently laid homes fell down for 10.0% m/m and made 593 thousand, whereas the decrease was expected for 3.7% only. The capacity of the developmental permits also went down, for example, the indicator lowered down for 5.9% and made 574 thousand in May, despite to the forecasted growth for 3.3%, till 630 thousand per annum. The number of the developmental permits for new homes is an advancing indicator of the business activity. Of course, the result of the kind never encourages the expectances of future improvement in the home construction. The producers’ price also showed the decrease in May: the PPI lowered down for 0.3% m/m, though increased for 5.3% annually. The Core Index i.e., without the food products and energy resources prices grew up for 0.2%. The US manufacturing growth for the third month running also gladdened – the speedup was noticed in May, and the volume grew up for 1.2%, alongside to the forecast of +1.0%. The advance on the processing sector’s economic output was also fixed at the rate of +0.9%. The perspectives for this branch are also favorable as the manufacturing capacities’ availability demonstrated growth for 0.1% in May in comparison with the former month and made 74.7%. The today news package is just average both in quantity and quality of the represented data. At first, the weekly employment data, which is expected to show no changes in the number of the jobless claims compared to the former period, and secondly, the report of the FRB Philadelphia concerning the production activity, where the slowdown will probably be, are going to be represented today. Besides, the payment balance for the 1st quarter will attract attention as the raise of deficit from -166 Billion to -120 Billion of dollar is predicted. Most unlikely, the pressure on the US Dollar will renovate, but the ranging trading is much more probable.

   The next spurring of the apprehensions concerning the Euro zone’s national debts suppressed the Euro, which lost both to the US Dollar and Yen at the last session on Wednesday. “The Ark of Optimism” was split thereupon the publication of the information about the Spanish troubles and the probability of seeking for aide in amount of 250 Billion of euro by this country from both EU and IMF. This item made the sagging of the common European currency. Despite that, the official contradictions from the side of EU, IMF and even the US State Treasury leveled the situation; so, the Euro drew back some of the previously lost positions, but decreased by all means. Obviously, the investors don’t believe to the functionaries of the financial institutions any more, as the latter were often inaccurate while interpreting the facts. The media reports that the President of ECB J.-C. Triche had claimed the governments of the Euro zone countries to confirm their readiness to grant the financial aide for Spain in case of urgent necessity threw fat into fire. Nevertheless, as it became known, the President of IMF is going to have a meeting with the Prime-Minister of Spain this Friday. This fact will keep the markets in tension and obviously, favor the recovery of optimism by no means. There wasn’t much data on the economy of the Euro zone. In accordance with the represented facts, the consumer prices rapidly increased in May, and the index upturned for 0.1% m/m and 1.6% y/y. This degree is still below the ECB target level, which is just below 2.0%, and doesn’t confirm threaten of the price pressure. The German consumer prices also grew up for 0.1% m/m and 1.2% y/y. There’s going to be not much information from EU today as well. The ECB monthly report and the data on the development’s state of affairs will be the only, what will attract attention. If no news about the Spanish situation or the affairs of any other Euro zone country appears the common currency will most likely be inclined to the ranging trades with the risk of slow decline, because no influence from the macro economic stimuli is expected.

   The GB Pound decreased in the beginning of the Wednesday trades amidst the general disappointment by reason of Spanish difficulties. However, the sudden optimistic data on the British labor market provided a reasonable support. The number of the jobless claims curtailed greater than predicted in May in Great Britain. The decrease was for 30.9 thousand m/m, while the unemployment rate lowered down for 0.1 points till 4.6%. The capacity of the claims was presumed to decrease in May for 20 thousand only, and the unemployment rate should remain unchangeable, at 4.7% degree. Moreover, the April values were also revised upgrading – in accordance with the précised data, the claims shortage was for 32, but not 27.1 thousand, as it had been reported previously. Of course, this news supported the Sterling, which came back to its daily maximums to the US Dollar. Nevertheless, the daily results were far from being in favor of the British currency. The pressure on the “cable” was caused by the speech of the President of the Bank of England M. King, which stated that the hardening of the fiscal system’s regulation was just nearby. That was considered by the investors as negative for the Sterling. Besides, the investors got extra confirmations that the expectances of efficient austerity of expenses aimed to cut down the budgeting deficit in Great Britain were grounded. That certainly causes threatening to rapid economic recovery. The data, which are planned for the today publication, presume a reasonably nice environment for the Sterling as forecasted. The May retail turnover is expected increasing for 0.1% m/m and 2.0% y/y, just the same as the manufacturing orders’ balance, because it may show -15 just after -18 in April according to the report of the Confederation of the British Industries (CBI). At the same time, the reasonably nice macro statistics of this kind the burden of both the reforms and necessity of expenses’ austerity might go ahead suppressing the British currency.

   The Japanese currency kept the sideways range, which had been shaped recently. However, summarizing the day, it fixed a slight strengthening to the US Dollar amidst the investors’ departure out of risk. The yesterday published monthly report of the Bank of Japan stated that the estimation of the home economy remained unchangeable. Though, it also marked out that the raise of the production would enlarge the growth potential. Moreover, the equipment orders were revised – the recent result noted +192.5% y/y. Today it has already been reported that the new emerged Japanese government would have to go the length of tax increase in amount of 7 Trillion of yen targeting to limit the sales of the bonds in a couple of next years and so, cut down the loans. As known, the Japanese budgeting strategy is an object of the special attention from the side of both the Standard & Poor’s and Moody’s Rating Agencies, which have already proclaimed the risks of keeping the rating by Japan. As concerning the Yen’s positions, the currently observed decrease of the willing to risk at the market may provide the support to the Yen as a currency shelter and so, cause the intensification of purchasing of this currency.

Analysis prepared by:

Arkady Nagiev
Forex4you analyst