On Tuesday the results of the currency market trades were quite typical of the environment in the points of massive upraising of reluctance to risk. The US Dollar strengthened to the European and other high profitable currencies, but greatly lost to both the Japanese Yen and Swiss Frank. Another surge of the apprehensions concerning the global economic raise together with various events in the Europe and worse than expected data on the US economy intensified the troubles about the possibility of another wave of recession. Even if the yesterday published data on the home market might be concerned as relatively good, because the home price index in 10 US megacities grew up for 0.7% m/m and in 20 largest cities – for 0.8% by reason of households’ rush to effect deals before the expiry of the state tax benefits according to the S&P/Case-Shiller report, but the consumer sentiment marked a sufficient burst of pessimism in June. As it was declared by the Conference Board Study Group the consumer confidence index slid to 52.9 in June against 62.7 in May in the USA. Concerning the today news, the ADP Private Employment Report is worth of special attention as the forecast predicts the Payrolls increase for 58-60 thousand in June. Furthermore, the Chicago purchasing managers’ index (Chicago PMI) is also going to arouse interest because the indicator is expected weakening to 59.2 from 59.7 by reason of June decline of the business activity. The current market environment, which is marked by the downfall of the inclination to risk, will probably remain unchanged due to the data on the US employment, which are going to be published on Friday, are predicted declining – this is an enough reason for the special caution, of course. Though, the ADP data may make some adjustment if they’re quite good as the US Dollar may cease its strengthening. Moreover, the upturn of the “greenback” may also be interrupted by the technical factors, which are related to powerful ranges of resistances/supports at the reached price degrees.

   The common European currency melted down to the US Dollar at the Tuesday trading. The array of various causes, which appeared yesterday, suppressed the Euro most greatly and so made slid down to the minimums against all major “opponents”. The disappointment concerning the economic raise together with such troubles as ill data on the US economy, concerns about new terms of the European Central Bank’s refinancing in amount of 442 Billion of euro on Thursday, and finally, the Greece’s to get back the bonded loans to the market with the following apprehensions of failure in this country’s attempts, reasoned the sales-offs of the common currency. Moreover, the general turnout in Greece added to the unfavorable factors. Despite all that, in accordance with the yesterday represented report of the Euro Commission, the consumer confidence and mainly the business behavior remained high in the region. The economic sentiment index grew up to 98.7 compared to 98.4 all over the Euro zone, whereas the forecasts predicted decrease to 98.0; the consumer confidence strengthened a little, the index was fixed at -17 after -18 in May. The manufacturing sentiment index remained at -6, alongside to the foreseen -7 and the services indicator increased to 4 from 3, which had been stated in the previous month. However, the affairs of the developmental branch remain poor, because the decline of the sentiment was to -30 from -28. The environment of the kind cherishes hopes for the continuation of the Euro zone economic recovery. At the same time, it failed to help the Euro to cease downgrading. There isn’t going to be much news today. The data on the German unemployment would like to show decrease, though the general rate of unemployment is expected at the same degree of 7.7%. The June consumer price index for the Euro zone will probably note weakening till 1.5% y/y just after 1.6% y/y. As it’s clear, there’re no statistical causes for further pressure on the Euro. That’s why the interruption in the sagging of the common currency is probable. It means the Euro’s consolidation within the ranges is possible.

   The British Pound completed the Tuesday session with loss to the US Dollar. The general market environment, which was fed by the apprehensions concerning the global economic recovery, obviously caused the cease in the arousing of interest in the Sterling. Meanwhile, the economic data from the “Isles” were reasonably good, though they failed to support the GB Pound for a long time, because the British currency’s purchases influx due to the macro information quickly dried up. The indicators of the money supply, which were represented by the Bank of England, demonstrated the upturn of the M4 money aggregate because of the increase for 1.0% m/m and 9.2% on an annualized basis in May, but taking into account the three-month basis until May inclusive only. The increasing tempos turned to be the highest for almost 3 years. It proves the effectiveness of the BoE quantitative easing policy to some degree, and so, the British monetary-crediting terms gradually normalize. However, the rest of the figures in this report point at the relevance of many troubles. All the same, the crediting is increasing very slowly. For example, the households’ crediting grew up for 0.9% only during the period from March till May, whereas the corporative crediting curtailed for 0.6% m/m in May. The corporative crediting fell down for 4.3% in annual comparison; the number of the approved mortgage loans occurred to be worse than foreseen and made up to 49 815 against 49 828 in April. The net value of the British consumer crediting suddenly gladdened as it exceeded expectations in May because of the growth for 1.52 Billion just after the raise for 865 Million in April, whereas the forecast resolved to +1.0 Billion of pound only. The Euro Commission’s data on the British consumer confidence index caused disappointment. As it was announced, the June indicator slid down to the lowest possible degree since last August and made -11 against -10 in May. Today the GfK data have proved it, as in accordance with this line the consumer confidence index sagged down to -19 in June after -18 in May. The hot spot of the day, which was looked forward by the market, the publicizing of the final data on GDP for the 1st quarter, isn’t going to be made because of almost fortnight postponing as the National Statistical Bureau report indicates. Despite the loss the British currency kept consolidating next to recently achieved degrees at the former session. Quite possibly, it may renew its advance due to the lack of evident negative from the “Isles”. At the same time, both the ambiguity and the apprehensions, which still present at the market, will probably cause the continuation of the sideways move, but with some risk of the British currency weakness still yet.

   The Japanese Yen gained to all majors at the Tuesday trading as the investors promptly got out of the carry trade deals and purchased currencies shelters. By the way, the significant portion of the apprehensions concerning the global economic recovery was contributed by the yesterday published data on the economy of Japan, which stated the massive decline all over the represented news. Furthermore, the US dull data, which caused the downfall of the 10-year T-Bonds’ profitability till the least possible degree since April 2009, and the quotation sagging at the stock venues also added to this descent. Obviously, assuming the expectances of the fresh influx of acknowledgement of world economies’ weakness, in particular the American one, by reason of the employment, the advance of the Japanese currency may go ahead. Meanwhile, the probability of the intrusion of the Japanese state authorities into the development of events by means of the intervention should be also taken into account, because the Yen approached next to the new annual maximums. In former times the market faced the concerns and hearings about the probability of the intrusion of the Bank of Japan into the market for the purpose of weakening its national currency when the Yen rose up to these degrees.

Analysis prepared by:

Arkady Nagiev
Forex4you analyst