News and data were thin for the dollar on Friday but eventually the greenback found a rally from somewhere and ended the session up against most majors. It could be the rally in equities which has pushed down safe haven demand for the dollar was running out of steam with many traders prudently closing out positions before the weekend. Many market commentators believe much of the trading going on is down to technical rather than fundamental drivers at the moment since the fundamental data recently has been described as somewhat ‘soft’. On Friday Wholesales Inventories were up whilst Sales of Goods were down underlying the complexity of the situation and the limbo territory betwixt positive and negative statistics which characterise many economies at present. This week’s key news events for the dollar will probably be Retail Sales on Wednesday and CPI on Friday so watch out for moves during those two times. The dollar ended the session up against the euro at $1.2640 and up against sterling at $1.5062.

   The euro fell broadly on Friday as enthusiasm for the risk rally in equities began to run out of steam. There was such insubstantial change on the data front that that the markets didn’t particularly react to them at all. Nevertheless the euro seemed to top out and begin falling. It could be traders were following technical queues rather than basing their evidence on any loss of confidence in the single currency, since if anything confidence couldn’t be higher after the euro zone banks successfully repaid their four hundred billion euro debt to the ECB and stress test results look positive. The euro closed the week down against the dollar at $1.2640 but up against sterling at £0.8391.

   The pound fell as the trade deficit came in wider than expected showing falling exports. The balance of trade dropped from £-7.4bn to £-8.1bn in May. Sterling fell to $1.5062 against the dollar and ¥133.46 against the yen on the back of the news. Further data showed a decrease in the PPI - a measure of inflation in the manufacturing and wholesale sector. Both sets of data augur badly for growth. The UK has a lot more economic data announcements coming up this week, including CPI tomorrow (Tuesday), which should compliment the PPI figures today and UK jobs data on Wednesday.

   The Japanese yen traded mixed as equities continued to rally but elections in the country’s upper house boosted political uncertainty. In the end the ruling party led by Naoto Kan lost their majority increasing uncertainty as to the political direction and leadership of the country. The government is thought to have lost because of its intention to put up good’s taxes in order to cut the huge budget deficit. This policy was unpopular, however, amongst the electorate. There is speculation now as to how Japan will deal with its budget deficit without the political will to introduce austerity or higher tax measures, and whether this could lead to its sovereign debt being downgraded by the rating’s agency who have been threatening as much recently. However, the yen didn’t change much as a result of the data surprisingly enough. Investors will be waiting to see therefore what is announced at the BOJ Monetary policy meeting on Wednesday. The yen fell during Friday’s session to ¥88.61 against the dollar and ¥111.99 against the euro.

Analysis prepared by:

Joaquin Monfort
Forex4you analyst