The high spots of the previous week were the fiscal-political component, because of a little statistics, the significant one, first of all. Both the FOMC meeting and the comments following the pronouncements of its conclusions certainly became the focus of interest. Despite the text of the statements looked like the previous one, it was remarkable for greater pessimism, more conservative estimate of both the labor and real estates markets, and finally, disquietude about the European default, which is the reason for disillusion of the rapid recovery of the global economy. The US Dollar began dropping down, even despite the negative vote of one of the Committee’s member, the Governor of the FRB Saint Louis T. Hennig, who persisted in its opinion about the quickest beginning of the monetary tightening. This more conservative and pessimistic tune laid the groundwork for the sales-offs of the American currency, which afterwards was under pressure as for all majors till the end of the weekly session; though it enjoyed popularity and was nicely purchased for both the Euro and GB Pound in the first day of the former week. It’s also reasonable to keep in mind all twists and turns of the Chinese Yuan: all promises of the People Bank of the PRC about the raise of the rating flexibility concerning their national currency resolved to tampering, because the Chinese currency gained according to the official rate in the morning, though it dropped down in the evening as it was soled by the sate banks. By reason of the recently published statistics the final estimation of the US GDP for the 1st quarter disenchanted, because it turned out to be worse than the previous one: the quarterly upturn was less than 0.7%, and moreover, the raise was possible mainly thanks to the commodities’ growth. The durable goods’ orders decreased for 1.1% n May, but if not to take into account the transportation and military branches the raise for 1.1% would be stated. The regional manufacturing activity went down as the FRBs both of Richmond and Kansas-City reported the fall-off in June. The preliminary jobless claims decreased in number. Though the labor market affairs are still less heartening, because the population census recruitment has expired; the statement, which is going to be represented this Friday, may show the cut down of the Payrolls. All the same, the home market’s sales were particularly ill-looking. Even if the ready home market’s sales curtailed for 2.2% in May, despite the predicted increase for 5%, the primary real estates market’s values wrecked for 32.7% at once, till the new recorded minimum of 300 thousand, and more, the former months’ values were revised downgrading. The key point of the week will certainly be the United States’ employment. The June Labor Report, which is scheduled to be represented on next-coming Friday and foreseen to state the Payrolls’ shortage again, will undoubtedly spread its influence over further trading sessions. Furthermore, some other piece of information about the labor market will also favor this i.e., both the data from ADP and the weekly jobless claims, which are going to be published on Wednesday and Thursday respectively. Besides the data on the Payrolls, the market will also put attention to the information about the Consumer Confidence, which is foreseen decreasing from 63.3 to 62.6, and the report of the Institute of Supply Management (ISM), which will probably state some slowdown in the manufacturing. The market’s climate of the first days of this week may be determined by the results of the G20 summit. As known, the matter of the fiscal regulation and the recovering strategies are discussed in the course of this meeting; the USA is an advocate of further economic easing, whereas the EU representatives claim for the expenditure’s cut down towards to overwhelm the budgeting deficits.

   The apprehensions concerning the troubles of the Euro zone national debts and also their reminders from the side of the Fitch Rating Agency, which downgraded the rate of the French biggest bank, suppressed the Euro in the first days of the former week. Furthermore, the “Bulls” attempted to straight things out the Euro taking an advantage of the optimistic rush, but they managed to neglect only some part of the losses to the US Dollar, and the session’s totals was far from being in favor of the common currency. The data on the EU economy were contradictory, as usual, though they never brought negative. The Euro zone industrial orders grew up for 0.9% m/m and 22.1% y/y in April. The state of affairs in the developmental branch will fail to be established for better, because the April value of the German orders fell down for 5.4% m/m. The Euro zone payment balance stated deficit in April, -5.1 Billion of euro. Despite that, the business behavior was optimistic in June following the IFO data. The German export and import prices go ahead increasing as they added 0.5% and 0.6% m/m correspondingly in May. The consumer sentiment worsened in Germany, but improved within the Euro zone in general, though stayed below zero all the same. The purchasing managers’ indexes (PMI) occurred to be contradictory as the raise was observed in the manufacturing together with the slowdown in the branch of the services both in Germany and the Euro zone. The appearances of the ECB functionaries were footless, whereas the speech of the President of ECB J.-C. Triche before the European Parliament excited to strengthen the independence of the control over the budgeting policy and vesting with greater powers to the Euro Commission for that. The lack of negative information slightly eased the market, that’s why the Euro enjoyed popularity up to the end of the trading day. Both the EU inflation and Payrolls will be the hot spots of the statistics’ publication during this week. The unemployment rate is expected to remain unchangeable at its maximum for last 12 years, which was gained in April, whereas the advancing consumer price indexes (Advancing CPIs) of both Germany and the Euro zone will probably demonstrate the slowdown of the annual upturn, because of currently observed retardation in the price increase for the food products, energy resources and other base goods. As concerning the Euro’s prospects, the fixed determination of the EU state authorities to cut down the state expenditures will probably cause the decreasing of interest in the common European currency. Most likely, the Euro will incur pressure again thereupon the impermanent ranging trading.

   The British Pound was the champion of advance at the currency market summarizing the former week. The Sterling gained both to the US Dollar and Euro, though stayed neutral to the Yen. The concerns that the budgeting deficit curtail outline, which is going to be represented this week, may suppress the “cable” failed to come true. The market was pleased with announcement of the Government – the Minister of Finances D. Osborne declared the planned shortage of the deficit for 6 Billion this year and for another 1 Billion in the next one, and also for yet another 34 Billion of pound in the succeeding years, through 2014. The forecasts of GDP were downgraded, and the public sector wages’ freezing was also scheduled. Concerning the fiscal policy, the corporative taxes’ reduction was envisaged, but together with the levy of the banking tax and also the increase of VAT from 17.5% to 20%. The prospects of the kind were met with the approval from the side of the rating agencies, which asserted that Great Britain would maintain its rate of AAA. The minute of the bank of England’s last meeting sprang a surprise, because it proved that of the Committee’s members, E. Sentance, had voted for the increase of the interest rate for 0.25% by reason of the apprehension of further inflationary increase. These events supported the Sterling, which reached new monthly maximums to the US Dollar. There wasn’t much economic data. The capacity of the mortgage loans claims slightly rose up in May, though failed to overlap the previous losses; according to the official line of the Confederation of the British Industries (CBI), the retail sales balance became better in June, and moreover, is predicted to get above zero in the second summer month; finally, the home prices went ahead increasing, but with evident slowdown in June. The news of this week is going to represent the final data on the British GDP for the 1st quarter. There’re forecasts, this result will be revised upgrading due to greater than expected manufacturing production. However, the rest of information, which is planned to be published, never sets mind optimistically. The purchasing managers’ index for the manufacturing (manufacturing PMI) will show slowdown in June, just like to the consumer confidence index, and that will be the weakening for the fourth month running. Obviously, the forthcoming taxes’ increase and massive cut down of expenditures causes the concerns of people touching the influence upon them personally. On this basis, it’s reasonable to foresee the Sterling will face the running out of credit from the side of the investors and so, incur the pressure of the sales-offs.

   Despite the heightened degree of the inclination to risk, the currency of Japan remained eagerly sought as a currency shelter and fixed the steady strengthening to the US Dollar. Quite likely, the prudent position of FRS together with the drop down of the US securities’ profitability caused the departure out of the US Dollar’s assets into the Yen. The economic statistics demonstrated the decrease of the Japanese trading surplus in May, and the export lessened for 1.2% compared to April. The purchasing managers’ indexes (PMI) for all branches of the Japanese economy grew up in April, though the prices go ahead sagging, for example, the decrease of the corporative services prices was for 0.8% y/y in May, for consumer goods totally – for 0.9%, except for the fresh food products – for 1.2%, and finally, disregarding of food products and energy resources – for 1.6%. The May sales were worse for 2.1% y/y in the department stores and for 5.3% y/y in the supermarkets. The Japanese authorities intend to implement the budgeting reformation like to their colleagues in other regions of the world, and that’s quite difficult amid the crisis. As usual, the end of the month is going to be rich for the information about the economy of Japan. Moreover, the statistics of the Payrolls in May is foreseen to be favorable, because the decline of the unemployment rate may be marked; also, the households’ expenditures are presumed to increase in that very month. Furthermore, the Tankan Report for the 2nd quarter is also forecasted positive. However, the industrial production may state the annual decrease in May, while the today published data on the retail sales in May have already demonstrated the meltdown: -2.0% m/m and 2.8% y/y compared to previous 0.5% m/m and 4.9% y/y. As concerning the Yen’s positions, there’s a great portion of ambiguity, because the dullness of the US statistics, concerning the labor market in particular, might reason the further strengthening of the Japanese currency. Though, the risks of intervention from the side of the Japanese state management raises together with the gains of the Yen. Moreover, such technical factors as the powerful supports of the cross of USD/JPY urge for caution.

Analysis prepared by:

Arkady Nagiev
Forex4you analyst