Last week was remarkable for respective mildness amidst the insignificant capacity of the US economic statistics. The attempts to suppress the US Dollar went on, but succeeded concerning the cross of the “buck” to the Euro only, because the latter was upraising thanks to the optimistic influxes at the stock market and also the absence of further negative concerning the EU countries’ debt troubles. However, both the GB Pound and Yen were in “less luck”, because these majors lost to the “greenback” its predominance at the market, which occurred in the beginning of the week and completed the session sagging down. As mentioned, there were little data on the economy of the USA. Their values stirred up the conclusions of pessimistic climate in the US affairs, as the purchasing managers’ index for the services stated a definite meltdown in June, while the same tendency was observed in the consumer crediting – the April value was revised to -14.9 Billion after previous +1.0 Billion of dollar, and it was pronounced -9.1 Billion for May. The employment statistics smoothed the situation to some degree, but only concerning the weekly dynamics of the primary jobless claims, which showed a shortage. The increase was also observed in the wholesale stocks as there was a raise for 0.5% in May after +0.2% in April, though the annual dynamics proves the cut down for 2.1% y/y. There’s going to be much more American economic news this week. The following data will certainly cone the market’s attention: the foreign trade’s totals with the forecasted shortage of the deficit to -39.3 Billion from -40.3 Billion of dollar, the results of the budget implementation, with probably les minus than before, moreover, it’s predicted to be almost twice less; and finally, the June data for the retail sales, which are presumed decreasing for -0.1% m/m, what is much less than fixed in May, when it was -1.2% m/m. Besides, the inflation will also arouse interest as both the producers’ and consumer price indexes are predicted sagging down per annum, whereas there’s foreseen the monthly increase of the consumer prices (CPI), though the decline of the producers’ ones (PPI). The political component of the weekly news will be represented with the appearance of B. Bernankey and the publicizing of the last FOMC meeting’s minute. As judged by the former weekly session’s events, it’s reasonable to forecast the comeback of the concerns about the Euro zone’s troubles to the market. The widening of the spread between the German and Greek bonds reasonably confirms it. If this mood keeps stays further the US Dollar will go ahead getting back its formerly lost positions. Also possible, this process has already begun on the previous Friday, when the “buck” mainly fixed the profit.

   The Euro is the only one among the majors, which managed to retain the “triumphant” totals resulting of the weekly trades against the US Dollar. The evident bust of the information flow as for the Euro zone’s debts problems, the high-leveled demand for the Spanish bonds, which was observed during the last bid auction, and finally, the assurances of the Spanish government of the guaranteed fulfillment of its obligation, which should expire in July, supported the common European currency. Moreover, the stock markets’ optimism also leveled up the demand for the Euro. Though, the widening of the profitability spread between the 10-year Greek bonds and the German one with the same expiry period till 8% per annum in last trading day of the week i.e., on Friday, reminded the market of the default threatens’ relevance. That caused the sudden reversal to the common currency’s sales, but all the same it couldn’t derogate all Euro positions gained to the US Dollar. Furthermore, ECB went ahead refinancing the banks and announced the terms of the stress-tests – that calmed down the markets and so aroused interest in the Euro, of course. The interest rate remained unchangeable at the last meeting of the European regulator, while the J.-C. Triche’s comments sounded optimistically. The data on the EU economy made no surprise as the GDP upturn for the 1st quarter remained within the edges of the advanced estimation, at 0.2% q/q and 0.6% y/y, though both the consumption and net export decreased. The May values of the European manufacturing indicators were reasonably good. The leading economies stated raise – Germany for +2.6% and France for +1.7%, however, the trading balances marked the opposite results as the surplus curtailed in Germany, while the deficit grew up in France. The situation is also unpromising long term, because the advancing indicator of the manufacturing orders lowered down for 0.5% in Germany, and that in its turn presumes the further cut down of the export as the principal trading item of the EU largest economy with its abroad partners is the industrial products. The ZEW report is expected this week. The business behavior index is predicted to tumble both in Germany and within the Euro zone in general by reason of elevated apprehensions concerning the Euro zone troubles and especially as for the banking sector. The inflationary parameters are forecasted to note decline; though, following both the forecasts and the data on the European leading economies, these indicators increased in May as compared to April. Also, there’s one more negative prediction for the Euro: the foreign trading balance’s surplus shortage. As seen, the major portion of the news predicts the downgrading trend resulting of the economic processes. Certainly, it will cause the change of the attitude to the Euro, which will be far from favoring the common currency, if it occurs in fact, of course.

   The cross of GBP/USD was interesting thanks to the ranging trades last week. The result changed every day, though the general impressions favored the Sterling’s advance. However, the weekly totals stated the US Dollar gain as the Friday trades provided the profit for the American currency when the “cable” incurred massive sales-offs. The weekly ambiguity obviously turned into the diffidence. The prospects of the British economy don’t obviously encourage the market to expect the development of the positive economic tendencies in the “Isles” by reason of the governmental plans of expenditures’ cut. Moreover, the indicators start to demonstrate the declining tendencies. The British services’ activity slid down to the minimum since August 2009. The opinion polls stated high apprehensions of the new wave of recession in the British business. The British trading balance worsened, while the deficits grew up. The producers’ transfer prices showed downgrading in June in Great Britain. Despite all above mentioned, the forecasts of various researching institutions encourage the expectations of further raise. For example, the British Institute of NIESR predicts the national economic increase for 0.7% in the 3rd quarter. Furthermore, the British Chamber of Commerce foresees positive perspectives basing upon the good orders’ balance for the former quarter. The British economic news is going to be rich for essential data this week. These publications are starting even today already. The first of all should be the data on GDP of the 1st quarter, which publicizing was postponed earlier. The forecast predicts the maintenance of the advance values of 0.3% q/q and -0.2% y/y. Also, the quarter information about the payment balance is to be represented with the rapid increase of the deficit from -1.7 Billion to -4.5 Billion of pound probably. Of course, it can’t be a good reason for the positive attitude to the British currency by any means. Later on, the statistics will show the June tempos of the consumer prices’ increase, which are presumed slowing down the 2nd month running together with the home prices, which indexes should state the sagging down as well in accordance with the RICS data. Finally, the data on the unemployment in the “Isles” are also planned to be published. This indicator is expected to show the shortage of the jobless receiving the redundant payment. Reasoning from the forecasts, it’s reasonable to presume the lack of support for the Sterling together with high probability of its return to suppression most likely.

   Thereupon the valid upturn in the first half of the week, the currency of Japan lost to the US Dollar and so got back to the minimums, whereat it resided in the end of June. The optimistic outburst at the stock markets afforded enough grounds for returning into the Yen as a foundering currency for the carry trade deals. That certainly determined its narrowing together with the US Dollar purchasing by the importers on the favorable terms. The economic data, which were published last week, weren’t encouraging, because the machine building orders suddenly fell down for 9.1% against April, which occurred to be the worst possible dynamics since August 2008. The money supply aggregates showed some squeezing, the volumes of the bank crediting lessened, and finally, the values of coinciding and advancing indicators demonstrated slowdown, just like the economic observers’ index. The trading balance surplus of “The Land of Rising Sun” also went ahead decreasing in May. Generally speaking, the macro parameters noted the unfavorable dynamics, while the state authorities go on speaking about the good opening. The economic data, which are going to be represented this week, aren’t likely to improve the general state of affairs. The services’ activity is predicted with dullness, and the households’ confidence lowering down in June. Nothing new is expected from the Bank of Japan concerning the interest rate, which will remain unchangeable most likely. The today represented data have shown the continuation of the inflationary development as the wholesale price index demonstrated -0.4% m/m for June. To say it in a word, it seems to be too long before the recovery in Japan. However, the statistics isn’t among the factors of influence upon the Yen. The results of the general elections in Japan will obviously be a checkpoint for the investors in the first day of the present weekly session, and in the second turn the level of inclination to risk, as usual. If presume, this factor may decrease i.e., the investors probably start seeking for a currency shelter again the Japanese currency has all chances to renew its strengthening.

Analysis prepared by:

Arkady Nagiev
Forex4you analyst