The initial strengthening of the US Dollar at the Tuesday session was interrupted with the announcements of the Reserve Bank of Australia, which had kept the key interest rates unchangeable, but made hints on the long-term tightening of its monetary-crediting policy. Following that, the US Dollar’s sales-offs intensified later – just after the publication of the data on the US services branch. These data exactly joined the list of less favorable than foreseen economic indicators, which hade been represented before, and so caused even greater doubts in the rapid recovery of the American economy. In accordance with the information of the Institute of Supply Management (ISM), the general purchasing managers’ index (General PMI) for the non-production branch lowered down to 53.8 in June from 55.4 in May. Moreover, the components of the indicator demonstrated the disappointing dynamics, because the new orders’ index fell down from 57.1 to 54.4, the price index slid down to 53.8 compared to 60.6 in a month before, but even greater concerns were caused by the Payrolls component as the employment index sagged down to the negative sector, till 49.7, whereas it had been 50.4 in May. Of course, the opinion that FRS would like to keep the interest rates unchangeable for a long period of time aggravates due to such an environment. This news pushed the US Dollar down to the new minimums to the majors. However, the intra-session dullness of the stock markets helped the “buck” to get back some part of previously lost positions. Despite that, the US Dollar’s daily result was mainly negative. The today news is meager, just like the former day, as the only MBA mortgage loaning index for July is going to be publicized. It’s obviously reasonable to conclude the indicator will show the decline of the mortgage loaning activity as well in reliance on the real estates market’s sales data. Most probably, the lack of significant information will restrict the market activity, so the US Dollar will keep range in the trading.

   The common European currency was remarkable for steadiness at the Tuesday session and also strengthened to the US Dollar till the new local maximums. The reluctance of negative news about debts in the European countries and also some improvement at the European bonds market together with the dull data from the USA make a good impact on the behavior of the common European currency. The statements of the European top-management also provide favorable influence on the Euro. For example, the Minister of Finances of Greece said his country was going to come across more merciful than predicted recession in 2010; also, the budgeting deficit reduction would be further implemented. That’s why the Greece’s comeback to the bonds market may occur as far back as the following year. At the same time, the investors are more skeptic and disturbed concerning the current state of affairs within the Euro zone. The attempts of the European countries to recover and level their fiscal policies by means of significant expenditure cut never invigorates going forward, because these measures greatly threaten to the economic recovery within the region due to the perspectives of the GDP upturn’s shortage and increasing of the deflationary risks. Yesterday no EU economic news was published; neither today there’s going to be much of it, as the only final data on the GDP upturn for the 1st quarter will be published. The previous estimation is expected to remain unchangeable, the forecast keeps the former values of +0.2% q/q and +0.6% y/y. Besides, the German machine building orders for May are going to demonstrate the decline both per month and annum, 0.3% m/m and 24.9% y/y just after 2.8% m/m and 29.6% y/y. That certainly may spoil the situation with the common European currency. Furthermore, it’s also possible, the above mentioned reasons for the negative attitude to the Euro will increase pressure on the common currency, and so its gain to the US Dollar will cease, all the more so, as the ECB decision concerning the rates is coming on. Taking into account all before mentioned, the trading is most likely to be of consolidating nature.

   The British currency began the Tuesday trades with the lost to the “buck”. The Monday “sour”, which was grounded on the dull PMI data, obviously went ahead influencing on the market. The support to the GB Pound, just like to the rest of the majors, was provided with the dull data on the US economy. That’s why the Sterling had reached the new maximum to the US Dollar, though it lost some of its achievements later. Most likely, the impression of abatement of threat to downgrade the country’s crediting rate begin to faint, but they have recently supported the GB Pound, and the economic prospects of the tax-budgeting discipline’s tightening from the side of the new emerged British coalitional government is currently coming to the fore. As like as not, the decline of the purchasing managers’ index (PMI) is much more massive than predicted, and so it’s considered as the first signal to the next-coming difficulties. The situation of the kind in the “Isles” reasons not so trouble-free future for the British economy by reason of the probability of the second recession wave not only in the Euro zone, but also all over the world. No statistics was published yesterday. The today represented data state the June tumble of the annual consumer price index to 1.1% y/y from 1.5% y/y before in accordance with the BRC report. This dynamics proves the BoE forecasts about the decrease of the inflationary pressure to some degree and also gives the lie to the probability of the monetary-crediting policy tightening from the side of the Bank of England even more. Probably, the GB Pound will further keep the ranging trades with the significant risks of sagging down.

   The currency of Japan spent the whole previous session within the sideways range to the US Dollar, though it completed the day with the gain to the “buck”. The main factors of interest in the Yen were the reports about the increase in volume of Japanese T-Bonds’ purchasing by China together with the dull US economic data, which keep the Yen as the securest currency shelter amidst the escalating apprehensions concerning the global economic recovery. As deemed to be, the news about the Chinese investments will be reflected with the short-term response of the market, while the profitability of the US T-Bonds seems to go ahead staying the main factor of influence. If the economic data from the USA occur to be disappointing and reason the profitability downfall the US Dollar’s selling will go on. Today no economic news is going to be published in Japan. So, the Yen will be mainly guided by the rate of the inclination to risk still yet.

Analysis prepared by:

Arkady Nagiev
Forex4you analyst