The Monday news cycle mainly supported the American currency, which extended the last week trend and strengthened to the European opponents. The reports about Germany was examining the variant of the “well-ordered bankruptcy”, the threatens of the S&P Rating agency to Great Britain and also the “last hurrah” of the governing party at the election in Japan moved a meritable base for the US Dollar’s leadership in the first trading day of this week. Besides, the investors started to extend caution in the anticipation of the bid auction for the European T-Bonds’ placement and the beginning of the 2nd quarter profit statements’ representation by the United States companies. So, summarizing the day, the departure out of risk was stated. That’s why the “buck” fixed the profit both to the Euro and GB Pound, though some losses to the Yen, which in its turn neglected its previous losses, which had been made thanks to the outburst of the departure out of risk in the beginning of the trades. Yesterday no US economic statistics was published. The market focused its attention on the appearance of the President of the Federal Reserve System B. Bernankey. The main matter of his speech was the claim to both the banks and the governing institutions for rendering loaning to the minor business enterprises, because this was of key importance for the economic recovery, but the credits’ availability was limited due to the tighten standards of crediting. B. Bernankey didn’t comment on the issues concerning the monetary-crediting policy’s prospects; that’s why, his speech made no influence upon the development of the market events. Today the news flow from the USA is going to be much more massive, because the May data on the foreign trading balance with the predicted shortage of the deficit to -39.3 Billion from -40.3 Billion of dollar are expected. The June value of the IBD/TIPP economic sentiment index is also going to be published with the positive changes i.e., the growth to 47.9 from 46.2. However, the main reason for positive climate might be the US Budget Monthly Public Account for June, as the analysts predict the deficit cut: -78.3 Billion since after -135.9 Billion of dollar before. As concerning the near-term perspectives, the uncertainty, which has already caused the decrease of the risks appetites, seems to go on staying at the market for some time more. As a result, the “buck” purchasing will be further provided. This night the statement period has already started in the USA. The Alcoa Company’s report was first. Its totals occurred to be good, because the earnings per share (EPS) exceeded expectations. Despite that, the market never specially responded that because of the investors’ expectation for the information about the current state of affairs in the fiscal sector, probably.

   The pressure on the Euro, which had started the previous Friday, spread to the Monday session. Obviously, the opinions caused by the mass media reports that the issue of the Euro zone insolvent countries’ bankruptcy was on the agenda joined up to the fact of the profit fixation. That usually causes the foundation of the special service, which should supervise the default procedure, though, the essentials is that it will involve the financial losses of the investors, which put up the capitals into the T-Bonds of the countries being incurred the bankruptcy procedure. Of course, the hint on the prospect of the kind elicited a burst of negative emotions and suppressed the Euro. Furthermore, the market is apprehensive about the results of the Greek T-Bonds’ placement bid auction. Today the Greeks are going to offer the 6-month bonds in amount of 1.25 Billion of euro to the investors. If this promotion is attended with success threaten of default will raise, and the Euro will loose more attractiveness. Yesterday no EU economic information was represented; today the attention is going to be concentrated on the ZEW report. The economic sentiment indexes from this researching institution are foreseen sliding down in July. As expected, the German economic sentiment index fell down to 25.3 from 28.7, while in the Euro zone in general – to 16.8 from 18.8 according to the ZEW line. Meanwhile, the ZEW current condition index grew up to -1.2 from earlier -7.9 in Germany. As seems, however, the economic data aren’t going to make a significant impact on the situation at the moment, as the market is looking forward for the publication of the European banks’ stress-tests results. So, this news will be governing the investors until the results’ presentation i.e., July 23.

   The British currency was remarkable for the excessive volatility at the Monday session. So, the negative attitude to the GB Pound, which had aroused at the former weekly session, spread till the present one, and the “cable” was mainly sold in the beginning of the trades. Furthermore, the apprehensions concerning the publicizing of the recent estimation of GDP “added fuel to the fire” of the negative attitude to the Sterling, which checked up the new local minimums. Later on the British currency neglected all its former losses thanks to the support from the British foundation and came back to the starting point of the recent tumble. However, the S&P Rating Agency interposed a matter – despite it kept the AAA crediting rate for Great Britain, but stated the mid-term economic forecasts for Britain were less optimistic than the predictions, which served as a basis of both the Budget and risks, and also the high probability of approaching the British net national debt to the degree, which contradicts to the highest investment rating. All this certainly slumped down the British currency till the daily minimums. However, the Sterling made effort to get back to the opening degree thereupon the publication of this information. The “final strike” at the Sterling was made by the member of the Committee for the Monetary-Crediting Policy of the Bank of England A. Posen, who stated the probable continuation of the economic recovery, though it couldn’t be guaranteed. Most likely, the doubts in the speech of this functionary could be considered as a general opinion of all members of the Committee and so, stood the Sterling in bad stand. The expected statistics about GDP demonstrated the reluctance of any changes as the final estimation remained the main economic parameter unchangeable, at +0.3% q/q and -0.2% y/y. Though, the investors’ mood was spoiled by the totals of the British foreign trading, because the payment balance current account’s deficit rapidly rose up in the 1st quarter and amounted to 9.6 Billion against +0.5 Billion of pound in the 4th quarter of 2009. The totals of the last quarter of the former year was revised from -1.7 Billion of pound. The deficit’s increase was caused by the worsening over all compounding parameters i.e., current transfer deeds, goods and services trading. The today expected news is going to present the information about the consumer inflation in the “Isles” for June. Furthermore, the slowdown of both the CPI raising tempos is predicted for June – 0.0% m/m, 3.2% y/y after 0.2% m/m, 3.4% y/y and also the retail prices – till 0.1% m/m, 49% y/y since after 0.4% m/m, 5.2% y/y. The today published data have already stated the retail sales growth per annum according to the BRC report, whereas the RICS data on the home price balance fixed the meltdown till 9.0% in June from 21.0% before. As judge by the market climate, the Sterling will most probably remain suppressed as the tightening of the budgeting policy together with the dullness of the monetary policy are both planned and implemented by the Government and encourages the market to urge a special caution as concerning the Sterling.

   The Yen was mainly sliding in the beginning of the former session. The opening of the Monday trades was impacted with the Japanese of the political environment, where the ruling Democratic Party of Japan lost the majority in the Upper Chamber of the Japanese Parliament. This very result certainly disposed an opinion about the “hang Parliament”; that’s why the passage of any administration bills will be greatly embarrassed. This became an object of close attention from the side of that very S&P Agency, which had warned about the threatening of downgrading for the Japanese crediting rating before, in January. Of course, the realization of the like threatens became realistic under such conditions. Later on the interest in the Yen as a currency shelter was got back, because the negative information from the Europe elevated the investors’ caution. The today published statistics has already showed good results: the May industrial output was revised upgrading, till 0.1% m/m, 20.4% y/y thereupon -0.1% m/m, 20.2% y/y; the utilization rate slightly grew up for 0.8%; and finally, the consumer confident index increased till 43.6 in June from 42.7. Nevertheless, the statistics is usually going to make a transient impact on the main Yen’s driver i.e., the degree of the inclination to risk.

Analysis prepared by:

Arkady Nagiev
Forex4you analyst