The US Dollar mainly lost at the last weekly session due to the weakness of the US economic indicators. Previously the dull economic statistics favored the “buck” in maintenance of the special interest of the investors in it as a currency shelter. Though, this time the information of the kind obviously caused the doubts in the accuracy of both the presumption of the US surmounting the crisis before the rest of the matured economies and the near time tightening of the monetary policy by the Federal Reserve due to this. Actually, the recently published economic reports stated the massive slowdown in the United States recovery. The sluggish increase in the manufacturing, growth in number of the jobless claims, tumble of the Payrolls, the shortage of the accommodation development and finally, slumping sales at the home market may pin down to draw the only conclusion – the key interest rates should be kept at zero point for a long term in the USA still yet. Furthermore, the peculiar figures state the significant decease as the manufacturing orders lowered down for 1.4% m/m all over the USA, the regional values of the business activity sagged down everywhere except for New York, the national ISM index for the manufacturing branch also cut down, of course. The developmental expenditures fell down for 0.2% in May; the outstanding realties sales transaction melted down for 30.0% per month at once and so demonstrated the actual demand without the supporting from the side of the national easing programs. The labor market showed the most disenchanting dynamics. Besides the beginning of the raise in number of the jobless claims in the end of June, the US Main Labor Report marked -125 thousand for the Payrolls. However, the unemployment rate was reported as slid down to 9.5% from 9.7% due to the similar cut down of the working-age population. Most likely, it should be taken as a simple data handling. The June meltdown of the consumer sentiment index from the Conference Board was quite natural against such an environment. The presently started week is going to be shorted for the American markets. Today there’s a day-off in the USA due to the national holiday – the Independence Day. However, the rest of the weekdays aren’t also going to represent the plenty of information. The only essential data among the expected statistics should be the ISM index for the branch of services, which is forecasted sagging down to 55.0 from previous 55.4, together with the May consumer crediting with the foreseeing of -2.0 Billion of dollar and also the wholesale commodities of the same month, which remain unchangeable. The poor in the US news environment usually made a negative impact on the US Dollar. Though, this time it might become the favoring factor, which can help the American currency to keep its current rates. Meanwhile, it necessary to keep in mind the affairs in the rest of the world are far from being excellent, and that in its turn can cause the “buck” comeback to the leading positions at the market.

   The Euro gained at the former weekly session. However, the totals of the first trading days fixed the massive sales-offs of the Euro zone currency. The market’s pessimism by reason of the dull regional economic data was further deepened by the apprehensions concerning the Euro zone banking sector’s liquidities due to the expiration of the ECB last year crediting. The fears of the problematic loan repayment of the amount of 442 Billion of euro suppressed the Euro. Though, the ECB managed the situation by lending three-month loans in a day before the repayment and then also six-day borrowings just next day. That caused releasing the tension at the market and encouraged the investors to purchase the common currency, which rapidly regained all its losses and even got a profit to the “buck”. At the same time, threatens of the Moody’s Rating Agency to cut down the Spanish rate made almost no influence on the market climate, in fact. A bit later the concerns as for this were declined even more by the Spanish financial institutions thanks to placement of the 5-year bonds in amount of 3.5 Billion of euro. Though, the investors’ demanded profitability was much higher than before – 3.7% per annum just after 3.5%. Meanwhile, the Euro zone economic data weren’t remarkable for any results, which were able to support fundamentally the advance of the common currency because of the disappointing dynamics. Both the economic sentiment and the business activity in the countries of the block decreased, especially concerning the developmental branch. The Euro zone M3 money supply fastened squeezing, while the producers’ transfer prices accelerated their annual upturn in May amid the slowdown of the consumer prices’ increase by reason of the recession in demand. The massive decrease of the retail sales for 2.4% in Germany and for 1.9% in Spain looks natural against this background. The Euro zone unemployment remained unchangeable, though the increase of the Payrolls goes ahead in Germany, though with the slowdown per month at the point. The EU economic news, which is going to be represented during the current week, can’t be considered as favoring from the point of view of the quality as the final purchasing managers’ index (PMI) for the services is forecasted downgrading. The like dynamics is expected for both the manufacturing orders and industrial production of Germany in May, because the indicators are to demonstrate the slowdown in the orders’ upraise. The final data on the Euro zone GDP for the 1st quarter are going to remain unchangeable in comparison with the previous estimation, but the components may show narrowing, which will arouse the market’s interest. The pronouncement of the ECB decision concerning the interest rates will become one among the events of the week. As common, any change of the rates is never expected. That’s why all attention will be focused on the press-conference – so, J.-C. Triche will have to answer the questions about the enlargement of the T-Bonds Redemption Program and rendering the liquidities to the banks of the region. As concerning the prospects of the common European currency, it’s necessary to keep in mind the relevance of the Euro zone troubles, as the faintest prompt about them may suppress the common currency. So, the Euro’s recent strengthening can’t be considered as confident and long-term advance.

   Like to the rest of the majors the British Pound fixed the gain to the US Dollar summarizing the weekly trades, though incurred the pressure in the first days of the session. The pessimism, which predominated at the market by reason of the apprehensions concerning the economic raise, was also supported by some statistics from the “Isles”, which in its turn caused the sales-offs of the “cable”. The change of the attitude by means of the events within the Euro zone and also the encouraging data on the British business activity improved the situation – the Sterling’s purchasing was spurred, and so the GB Pound upturned above zero in the cross tot eh US Dollar. The information about the business activity in the “Isles” exceeded analysts’ expectations, because despite the purchasing managers’ index (PMI) for the British manufacturing branch fell down to 57.5 in June compared to 58.0 in May, it occurred to be higher than predicted 57.0 all the same; moreover, the same indicator for the development remained unchangeable in spite of foreseen decline. The British home prices haven’t demonstrated the convincing increase anymore yet. That’s why the recession in demand is obvious by reason of steadiness of the approved mortgage loans and also the actual crediting rate in May at the same value as in the former month. The M4 money aggregate’ increasing tempos go ahead disappointing. Because this parameter, which is usually used as a basis for the Bank of England’s analysis, got its minimum since the spring of 2003. The reduction of the budgeting expenditures, which is planned by the Government, bears negative forecasts and presumptions. As the mass media reported, the loss of jobs for about 4% all over the country is expected due to such austerity. As forecasted, the news of this week brings both favorable for the GB Pound information and that, which can absorb the interest in the British currency. The May data on the industrial production in general and the processing sector in particular will probably demonstrate more powerful advance in comparison with April, and that certainly presupposes the support for the “cable”. Meanwhile, the purchasing managers’ index (PMI) for the services, which is going to be published today, is expected with the slowdown of the increasing tempos for this most important economic branch. The Bank of England’s report about the decision concerning the interest rates and capacities of the quantitative easing will be in the focus of general attention this week. Despite concerning the interest rates the opinions are on the same page and everything is expected to remain unchangeable, some of the analysts forecast the growth of the capacities of the quantitative easing program for amount of 50 Billion of pound.

   The Japanese currency was strengthening all around the previous session mainly because of the support from the side of the political component, which encourages the investors to departure out of risk by reason of the apprehensions concerning the stability in the recovery processes. The economic parameters of Japan itself, which were represented last week, occurred to be contradictory. The industrial production lowered down for 0.1% in May against April, the unemployment rate suddenly increased, the wages are decreasing, which certainly causes the reduction of the households’ expenses. The sudden retail sales slumping for 2.0% in May as compared to April is quite reasonable against such an environment. On the other hand, the Tankan Quarterly Report from the Bank of Japan stated the improvement of the business behavior by reason of the indicators’ raise above zero, to 1 from -14 before. The forecast of the economic data, which are going to be publicized this week, speaks about the contradictory nature. The decrease of the machine-building orders for 3.0% m/m in May just after the raise for 4.0% in April is expected together with the cut down of the payment balance surplus to 1.2 Trillion from 1.38 Trillion of yen. However, the June report of the economic observers is predicted growing up to 48.3 from 47.7. As seems, the statistics will commonly occur outside of the control over the Yen. The apprehensions concerning the intervention into the market from the side of the Bank of Japan in case the situation of the Yen’s strengthening spreads from the former week will become the main factor of influence. It’s reasonable to foresee the narrow ranging trades of the cross of USD/JPY with risks of the range’s broadening upwards against this background.

Analysis prepared by:

Arkady Nagiev
Forex4you analyst