The American currency strengthened during this last week. Germany considers a possibility of “orderly insolvency”; The S&P agency keeps the threat of a ratings downgrade hanging over UK; Japan's ruling party suffers a resounding defeat in elections - all these messages created a good environment for the American dollar and the market mood was on its side.
But the following midday sessions brought the greenback under pressure again: Spain and Greece successfully selling their government bonds, thus making investors more confident, was one of the main reasons for selling the buck.
Good news from Alcoa and Intel added some negativism to the US currency. Statistics on the US economic recovery were the last straw. New York and Philly Fed data showed a decline in regional business conditions index; the US trade balance in May took a turn to a worse: net capital influxes in June came out to be less then in May, which nobody had expected.
Consumer and producer prices fell, indicating the weakness of private demand which naturally led to a Consumer Sentiment Index drop, according to IBD/TIPP, Michigan University and ABC News. Retail sales also decreased by 0.5% m/m. Speaking about the positives, one can mention 0.1% rise in the industrial index.
There is not a lot data coming up on the US economy this week. The key topics – prices, sales, construction – remain. Statistics on the US economic situation don’t differ a great deal from the the news from Europe, which gives a good indication for the dollar.
EUR
The European currency reached its peak in popularity during the last trading session, and showed the highest profit rate against the dollar and other major currencies. Successful operations with the EU government bonds restored the trust of investors and took away all the worries concerning possible defaults, which facilitated trading of the euro. Six-month Greek government bonds, sold out for 1.6 billion euro total with 4.65% annual percentage rate, also got good deal of attention. Even the fact that Moody’s downgraded Portugal didn’t influence positive shifts in the market moods.
Consumer prices slowed down in yearly comparison, though monthly levels remained. Messages, that Spanish banks asked the ECB for a loan, which was 47.5% more then in May, alarmed investors of possible problems in the banking sector. The upcoming news isn’t expected to be any special. The Ifo Index will experience a minor fall, so will preliminary PMI index due to certain measures taken by the countries in order to curb the budget deficit. After the euphoria about the good news from Europe fades away, the euro is likely to loose it’s ground against the dollar.
GBP
The British pound demonstrated a positive growth against the dollar. With addition to the good news from Europe, the data on the British economy itself were also optimistic. Recent labor report showed a decrease in the unemployment rate, GNP showed +0.3% m/m and -0.2% y/y.
News on the British economy contains several major points, which can influence the sterling either way. GNP growth acceleration, projected in the 2nd quarter is certainly one of the positive events. Increasing loans, contraction in money supply, and a slowdown in the retail sector, on the other hand are among the negative spots.
JPY
The Yen significantly strengthened against the dollar during the last trading session, creating uncertainty whether optimistic mood on the market will have a long-term or at least a medium-term effect. The ruling Democratic Party of Japan lost in elections, resulting in the opinion that such a “hung parliament” won’t be able to make right decisions, which weakened the yen. At the same time the later US economic data made investors change their mood and bring the yen back as a shelter-currency. Bank of Japan voted to keep its benchmark interest rate, it also raised economic growth expectations from 1.8% to 2.6%. But economic statistics showed poor results – tertiary activity in may slowed down (-0.9%), wholesale prices are falling down again, aggravating deflation, retail sales in the Japanese shopping malls dropped to 6.0% in a year.
Speaking about the Yen perspectives, they are quite vague. In addition to other factors, there is also a possible intervention threat due to its high levels against the dollar.
Forex4You analyst: Arcady Nagiev
nagiev@ forex4you.org
