The market had been negative to the US economic data, which weakened the greenback against high yielding currencies. After the US stock exchange opened with a decrease in indices, the dollar pared some of its losses, but only partially. The US economic statistics came out just as bad as they had been expected the day before. New home sales index hit its record low and showed -12.4% m/m, 276 thousand houses a year. Durable goods orders came out a bit better, with a slight growth by 0.3% in July. Still it was far less then expected +2.8%. Initial jobless claims for the last week are in the spotlight today. We expect a decrease from 500 to 488 thousand. Besides, Jackson Hole Economic Symposium is opening today, so the market is waiting for the news from this event. Of the most interest though is Fed Chairman B. Bernanke’s speech, scheduled for tomorrow, on Friday. Until then, the investors will probably have a waiting attitude, resulting in a range trading.
EUR
IFO Business Sentiment in Germany turned out to be above the expected, which had been a good start for the euro. According to the report, sentiments increased in August. Nevertheless, anxieties concerning financial stability in the European regions prevailed, so the euro couldn’t keep its positions and closed the session with just a slight growth against the dollar. To crown it all, right after S&P agency downgraded Ireland, Moody’s also threatened to downgrade Spain in the next month. It’s worth noting, that experts are warning of a possible economic recession in Europe – the governments are cutting their deficit spending. There’s not much EU statistics for today. Private sector credit index is likely to show annual growth by 0.4% y/y after the recent 0.3% y/y. A3 money supply is also expected with a rise by 0.4% y/y after 0.2% y/y. So, we should note, that these results are positive enough to support the euro.
GBP
Better then expected data from Germany’s Institute Ifo had a positive influence on the British pound either, although it was not so strong, like on the euro. Anyway, the pound did manage to keep these slight gains and closed the session with some profit. Seems like the government keeps in mind the latest events and takes into account the fact, that Britain’s economic outlook is getting worse. The British government, like in the whole continental Europe, is about to take strict austerity measures and significantly cut its government spending. So, new messages about high risks of the second wave of recession appear. There were no economic data yesterday, and today the market welcomes CBI report on retail sales, which is expected with a decrease from 33 in July to 23 in August, so it still remains in a positive zone. A high reading in July was prompted by the World football championship, which had triggered consumer’s activiy.
JPY
The yen dropped on Wednesday’s session, because of the rumors about a possible BoJ emergency meeting. The results on the country’s external trade, released yesterday might have caused additional fears of the Japanese government interventions to the market. And even though the trade balance surplus showed a positive reading, export growth in July showed the fifth slowdown in a row, as a result of a weakening demand, and became one more risk factor for the country’s economy.
The market now considers, that there are three kinds of measures, the government and BoJ can undertake to stop the yen from growth: – real intervention (BoJ’s intervention to the market and selling the yen), verbal intervention with the big seven to be involved, like in 2008, and the expansion of the yen’s liquidity. Such expectations are obviously weakening the Japanese currency, so its unlikely that the yen hits its new maximums in the nearest future.
Analysis prepared by:
Arkady Nagiev
Forex4you analyst