The dollar was strengthening at the beginning of the week. Anxiety over economic recovery raised interest to reserve currencies, which supported the dollar against the euro, but stipulated the sell off against the yen. During the second part of Tuesday’s session we observed a turning point, when the US economic news came out. They showed a falldown in new home and existing home prices, thus becoming the topic for discussion for the whole week. Such results had represented the dollar in a very unfavorable light, when the market was still waiting for the most significant event – Bernanke’s speech on the meeting with central banks officials. GDP data turned out to be better then expected, which ironed out the situation. The index grew by 1.6%, when 1.4%, revised after the previous 2.4% had been expected. Initial jobless claims decreased, which also brought some optimism to the market. As a result, the American currency slightly lost against the euro and the yen, but gained a bit against the pound. The market is obviously waiting for some more significant news the upcoming week to make its decision. In this respect, of interest should be FOMC meeting minutes, released on Tuesday. Chicago and Dallas PMI, ISM manufacturing and non-manufacturing indices will also receive close attention. Nevertheless, of the most importance is the US employment data – labor report for August is scheduled on Friday. The event is likely to be influencing the whole trading session this week.
EUR
Impressive GDP growth in Germany for the second quarter (2.2%), industrial orders growth in the Eurozone by 1.5% in June against anticipated 1.5%, above expected Ifo business sentiment in Germany suggested positive attitude to the European currency. Gfk consumer indices showed growth, private sector loans increased in the Eurozone by 0.9% in July after 0.5% growth in June, M3 money supply also increased by 0.1% m/m and 0.2% y/y, adding optimism to the European economic outlook. Nevertheless, the euro’s trading against the dollar wasn’t active enough. Seems like the market still keeps in mind debt problems in the peripheral countries. As a result of the weekly trading, the euro registered just a bit of a profit against the greenback. ECB interest decision is in the spotlight this week. No changes are expected here and the investors are more interested in liquidity regulator. Besides, close attention will be given to PMI manufacturing and services indices, and the second Eurozone GDP assessment for the second quarter with no changes expected either. Today, on the first day of the trading session we expect “sentiment” indices on Euro commission report, they are: business sentiment index, economic sentiment index, industrial confidence and consumer confidence indices are likely to register positive growth. If the expectations come true, the European currency has all chances to grow, especially taking account no significant news from the US.
GBP
The pound’s situation against the dollar looked the like with the euro dollar. The market was though less interested in the sterling in the second part of the week, so we observed an increase in trading the dollar. Probably the statements, concerning possible risks of a new recession made by some of BoE representatives, influenced the investors negatively, besides the Great Britain’s outlook doesn’t seem to be positive at all – the government is planning to cut spending and take further austerity measures. After Bernanke made his speech, the sterling corrected its positions, but it still didn’t manage to pare all of its losses and closed the session with some negative result against the greenback. Like at the beginning of each month, this week we welcome the outlook for business activity in all economic sectors of the “Islands” – PMI manufacturing, construction and services are likely to show further growth slowdown in August. Gfk consumer confidence report will signal of a weakening as well. The same dynamics is likely to be observed in mortgage lending. In short, macroeconomic statistics won’t be any good for the sterling, which is of course fraught with its fall.
JPY
The Japanese currency remained between the rock and a hard place. On the one hand, poor economic data from the US and expectations for further monetary policy easing in this country suggested increased interest towards the yen as a reserve currency. On the other hand, Japan’s government wasn’t satisfied with the yen’s positions, which put the currency under pressure. Moreover, when trading, the yen registered its annual maximums against the dollar, which alarmed the authorities. Today the BoJ has already had an emergency meeting – the government decided to leave its interest rate at 0.10%, but to take measures for monetary policy easing. Nevertheless, such turn of events didn’t impress the market and the yen is strengthening again. The government will probably have to take more aggressive measures, and considering this fact, it’s a good idea to be very cautious when trading the yen.
Analysis prepared by:
Arkady Nagiev
Forex4you analyst