The former weekly result of the FOREX market was quite explicit on the point of the high degree of the inclination to risk. The American currency’s sales were going on for the second week running, and so the US Dollar again fixed loss to all majors. Supposing the lost to the European currencies, which went ahead strengthening due to the heightened hopes for the global economic recovery, was evident; but the negative result to the Yen arouses great doubts in the steady and long-termed grounds of the currently observed inclination to risk. As a rule, the optimistic rushes demonstrate the advantage of the “greenback” in concerns of the Japanese currency. So, just opposite layout currently gives a handle to expect changes in the nearest time. The sanguine climate of the market incurred pressure at some points, because the apprehensions concerning the national debts of the European countries are still relevant, and moreover, the hearings that this time Spain was suffering from great difficulties, and the European Commission together with ECB would like to start using the EU Stabilization Fund through rendering of 250 Billion of euro for aide to this country refreshed these rumors. Despite that, this item didn’t keep the market on tenterhook long, because the contradictions on every hand perceived the investors to go ahead selling the US Dollar. The US economic data were volatile, though they never provided changes of the market climate. The manufacturing grew up for 1.2% m/m in May in the USA, while the regional economic activity marked the contradictory results in June: the FRB New York index upturned, but the indicator of the FRB Philadelphia crashed down. Just likely, the advancing index rose up for 0.4% in May, whereas the current accounts balance’s deficit increased in the 1st quarter in the USA. The decrease of the inflationary processes also occurred as the producers’ transfer prices lowered down for 0.3% in May, and the consumer ones – for 0.2%. Thereupon the expiry of the tax benefits for the home purchasing there’s also collapse in the home development, because the number of recent developments cut down for 10.0% in May, and the developmental permits – for 5.9%. That certainly caused the decrease of the National Association of House Builders (NAHB) index, which shows the home market activity. The inflow of the overseas costs into the American long-term securities was 83.0 Billion in April, what was less than the previous March value of 140.5 Billion of dollar, but the leaders are the same again: China, Japan and Great Britain. The latter fact gives great hopes for long-term supporting the US Budget. However, the principal matter of disturbance in the United States hasn’t been solved yet as the number of the jobless claims upturns again. The currently begun week is fruitful for the economic news. The primary and ready homes markets’ sales will attract attention together with the data on the durable goods’ commodities, the final estimation of the GDP for the 1st quarter and some other items. However, Wednesday may be called as the most important day from the point of view of the news, because the next FRS decision concerning the rates will be represented that day. The US regulator’s policy is expected to remain unchangeable, though the statements of the Federal Reserve’s functionaries, which were “hawkish” in temper, and also the words of B. Bernankey that the rates could be raised without any improvements of the employment, are able enough to instigate the special caution at the market. Besides, the expectances of the anticipatory G20 summit, where the theme of the Yuan’s revaluation may be taken up, will also make an influence upon the market. By the way, the gossips about the Chinese government’s intents to take more flexible position as for the national currency’s rate have already appeared. That certainly may invigorate the market in the very beginning of this week.

   The common European currency gained to US Dollar, moreover the fixed profit of almost 250 points might probably be considered as convincing. However, the current situation in the Euro zone never encourages such an opinion. The national debts’ troubles within the block are still acute: the news flow was massive – one more downgrade of the Greece’s rate, this time by the Moody’s, the hearings about possible difficulties in Spain, finally, the dull economic values in Germany and also the Euro zone in general. Nevertheless, it never aroused the sales-offs of the common European country, but only managed to cease the advance for short run. Though, it’s true that positive came in time by way of the news about the success of the securities bid auctions of that very Spain, and also good EU economic statistics, which neglected the negative attitude caused with previous negative information. Besides, the vigor contradictions of the hearings about the troubles in Spain also brought optimism to the market. Though such a fact as the 85.6 Billion of euro of Spanish banks’ borrowings only in May couldn’t be ignored by ECB and also indisposes to belief that Spain faces no difficulties, despite the affirmation of the European top-management. Such a layout provides tension at the market, because the disbelief may manifest through the Euro’s sales-offs any moment. Obviously, the observed upturn of the common currency may be imputed to some degree to the profit fixation and necessity to adjust the positions of the financial institutions just before the end of the quarter and semester. The EU economic statistics was multi directional as the Euro zone’s manufacturing grew up for 0.8% m/m and 9.5% y/y in April, but the developmental branch demonstrated an annual decrease for 6.1%. The ZEW economic sentiment indexes showed evidently negative dynamics in June both in Germany and the Euro zone. The trading balance of the Euro zone stated surplus in April, but the 1st quarter value was revised downgrading. The producers’ transfer prices fastened their raise from 0.6% to 0.9% in Germany, and the Euro zone’s consumer prices were fixed at +1.6% y/y. The decrease of the new cars registration is currently observed all over the Euro zone, it made -13.8% y/y in general. The news of the current week can’t be taken as encouraging the expectances of support for the Euro. The forecasted variant predicts the IFO business behavior index decreased in June in Germany due to the EU national debts’ crisis and hardening of the budgeting discipline both in Germany and in other countries. The advancing purchasing managers’ index (PMI) both for Germany and the Euro zone are also expected negative in June. The English for this is if bad news concerning the debts of the Euro zone countries further appears amidst the expectances of above mentioned results the common European currency quite likely may return to the downgrading trend with the prospect of sinking till the new minimums. As concerning the closest prospect, this day is remarkable for the speech of the President of ECB J.-C. Triche to the European Parliament about the monetary policy. That’s why it’s reasonable to exhibit special caution till the end of the day.

   The British currency was upturning during last week, just the same as the Euro. The support to the “cable” was provided by the general climate of the market and good economic data, which were published all over the weekly session. However, there were also moments of pressure. The most principal of them was the appearance of the Governor of the Bank of England M. King with the statement of dullness in the economic recovering processes and also assuredness that the inflation was transitory. They discouraged expectances of the quick increase of the British interest rates and so caused the Sterling’s sales, but not for a long time, as the statistics improved the situation while stating the British retail sales grew up for 0.6% m/m and 2.2% y/y thanks to the Football Mundial. Besides, the labor report for May demonstrated new decrease of the unemployment in the “Isles”. Though, these data from the Confederation of the British Industries (CBI) were less impressive, because the manufacturing orders’ balance turned to be worse than expected. The home prices went ahead upturning, but the consumer inflation slowed down, because it was only +0.2% m/m in May, whereas the annual value decreased to 3.4% just after previous 3.7%. The crediting went on curtailing its volume; that manifested itself in the money supply’s dynamics also, as the annual upturn of the M4 aggregate made up in May 2.8% only, what is a historic recorded minimum in fact. The problems of the budgeting deficit are still acute. The recently formed Budget Responsibility Administration announced its plans to cut down loans and so the slowdown of the economic increase as a consequence. By the way, the issues on the budget are going to be clarified next Tuesday, when the British Government is going to represent the draft of the annual state budget. This draft is considered as an emergency budget, because it’s expected to provide rapid cut down of the expenses and raise of the taxes. The market is looking forward for great surprises from this publication. That’s why it’s fair reasonable to focus the maximum of attention at this event exactly. Furthermore, the minutes of the Bank of England’s last meeting are also going to be publicized, though nothing special is expected from this information. It’s obviously reasonable to pinpoint at the Bank of England is currently “between the devil and the deep blue sea” actually, because there’re risks of the inflationary increase on the one hand, especially due to both the expectances and possible fact of the sales tax’s increase, which certainly demands the policy’s hardening; on the other hand, the possibility of the consumer demand’s decrease amidst the prices up-rocketing presupposes the further maintenance of the velvet terms on the contrary. In other words, the period of heightened ambiguity is arriving. In this environment it’s reasonable to expect both the decisions of hardening and declaration of further enlargement of the volumes of the state securities’ purchases.

   The currency of Japan mainly resided within the sideways range to the US Dollar. Though, the move was directed to the side of the strengthening, and that sorted ill with the increase of the willing to risk. The Yen’s positions to the European currencies, which were much sought after the former week, didn’t also incur great pressure. This fact encourages an opinion that the currently observed optimism isn’t very deceptive; that’s why the currency of Japan is still interesting as a currency shelter. There wasn’t much economic data: the manufacturing noted raise for 1.3% m/m and 25.9% y/y in April; the services activity also increased, finally, the economic estimation from the side of both the Government and the Bank of Japan became more confident amidst the started recovery. This week there isn’t going to be much news as well. Though, it’ll be amazing enough, because the major part of them will touch upon the price changes. The consumer price indexes (CPI) are expected to show some retardation of decrease in May, -1.1% thereupon -1.2%, and for the wholesaling services in June – from -1.1% to -1.0%. It means, there’re hopes for the slow loosing ground by the deflation. The perspectives of the Japanese currency in the concerned circumstances should most likely be considered as ambiguous, because the maintenance of the heightened degree of the inclination to risk are able enough to increase the interest in the Yen as a carry trade currency-funder, and that will arouse its massive sales-offs, of course.

Analysis prepared by:

Arkady Nagiev
Forex4you analyst