The Yen has risen sharply during Thursday trading session after release of worse than forecasted manufacturing data from China. It forced investors to sell stocks of Japanese companies and to buy Yen instead. In accordance with Thursday data manufacturing activity in China constricted in May for the first time during last 7 months. It has exacerbated concerns about slowing down of growth of the second economy of the world. Such weak data pushed the Japanese index Nikkei to fall by 7.3%, which was the biggest intraday decline in 2 years. In order to compensate losses incurred against the background of Japanese shares’ downgrade, investors began profit taking on their positions in USDJPY pair, that grew by almost 30% since the middle of October. Profit taking caused the Dollar to depreciate against the Euro, Australian Dollar and other main currencies. A lot of investors have been purchasing Dollar in recent 2 or 3 weeks, and that’s why market has started profit taking. Dollar’s weakening was unusual, because the Dollar and the Yen are considered to be a sort of “asylum” currencies. They are normally strengthening during market instability. The Dollar recently has stopped being perceived as s safe harbor. This month the Dollar appreciated by 3%. This growth was triggered not by concerns regarding growth of the US economy, but anticipations of US economy strengthening able to force the FRS to start closing its program of bonds’ purchasing. It would lead to Dollar’s appreciation. Thursday US data turned out to be better than forecasted, suggesting further US economy recovery. The number of Initial Jobless claims last week dropped more than anticipated. New Home Sales in April grew by 2.3% in the US reaching the highest level since July 2008. On Wednesday the Dollar abruptly appreciated after the head of the FRS Ben Bernanke assumed that the CB could start closing its program of assets’ purchasing quite soon if economy continues to improve.
EUR/USD
The Euro is in downtrend from 1.3242. Key resistance is at 1.2998. The break above it will be a signal of the end of downtrend. If that’s the case, then 1.3500 will be a target on the upside. The Euro is back above 1.2900 after bouncing from the low of 1.2810. Now it can remain ranged between 1.2800 and 1.3000.
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US Dollar grew abruptly against other main currencies during trading session on Wednesday, because the head of the FRS discussed the possibility of ending bonds’ purchasing program. He claims that the FRS might slow down the pace of buying bonds in the next few months, if data coming from the US continues to be encouraging. Investors expect that the US economy keeps on recovering faster than economies of other developed nations, what will enable the FRS to cut down stimulating program before other central banks. Bernanke’s words triggered rapid growth of the US Dollar letting it to gain back lost positions against the Euro. American currency also reached the highest level in more than four and a half year against the Japanese Yen and the highest from last June level against Australian Dollar. Swiss Franc has depreciated against the US Dollar and reached two year minimum at 1.2650, after Switzerland bank president Tomas Jordan claimed that he’s ready to undertake measures for further easing of the Frank and would consider introducing negative interest rates if necessary. British Pound ended trading near the 6 week minimum near 1.5045 after release of data with lowered retail sales in Britain in April. The figure was worse than the one anticipated by analysts. Such weak numbers exacerbated anticipations that the Bank of England will continue stimulating its monetary and credit policies. Tuesday data on inflation were also worse than expected, giving more opportunity to the BOE for maneuver, when Mark Carney will be a head of Central Bank in July. Meanwhile the bank of Japan has decided to leave its monetary and credit policies unmodified, leaving unprecedented program of assets’ purchasing intact. It is aimed at inflation acceleration to 2%. Trading in Japan ended with Nikkei fall by 7.32%. This is the biggest dip of the index since March 2011. It followed after an abrupt increase of governmental bonds’ profitability in Japan. Obviously Nikkei’s fall is going to shape the current trading day.
EUR/USD
The pair has been trading lower on Wednesday, because the market was concerned about QE. The pair closed its first negative day during the week, rebounding from resistance at 1.3000. It has broken support at 1.2900 closing near 1.2850. Immediate bias now is bearish.
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Panic triggered by Cyprus events has stopped and now there are not much concern regarding hypothetical deposits’ cuts in Europe. Nevertheless there is some “sediment” left afterwards. Portugal is in a special risk zone. There is a full complex of economic problems pending over a banking system there. Unemployment rate has reached 17% and continues growing. GDP is reducing and credit payments’ delays are growing like a snowball both in corporate and private sectors. Financial aid allocated to the state is about to end, and apparently no one intends to expand the aid. Only economic recovery can change the situation. That is implied in most economic forecasts. But the problem is that the vast majority of recent forecasts turned out to be more positive than real statistics. If things continue to develop the same way, then one day banks will be left cut off outside liquidity and the burden of responsibility will be laid upon deposit holders. Against the background of such events creating of unified bank regulator on the ECB basis could be a real solution. But it should operate the way it is proposed now, when the ECB is supposed to supervise only a small group of the biggest banks, while middle and small credit institutions will be a responsibility of national regulators. Within the framework of such system nothing can be radically changed, but banking system is at risk of being fragmented. Besides without creating a normal mechanism of liquidity support things are not going to change. Still interest rates on the debt markets will be left on acceptable levels. Overall statistics is worse than last summer. A lot of official like to talk about slowing of recession. But the main issue is high unemployment rate and its unstoppable growth. It is unclear what politicians account on when they talk about approaching beginning of growth with official unemployment rate over 12%. It is hard to expect that one day the figure will just decrease all of a sudden. Fighting unemployment will be quite hard, because more and more small and medium companies turn to be bankrupts, while these businesses constitute the basis of European economy.
EUR/USD
The Euro has succeeded to get above 1.2900. Now it aims to reach the target 1.3000 on the upside. Immediate support has moved higher, so now it is around the level of 1.2880.
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Last week data on EU GDP was published and there’s not so much positive there. EU economy has been shrinking 6 quarters in a row, showing a decline of 0.2% during the period from January to March. The most remarkable fact was the start of recession in France, the second economy in Europe. Basically problems in the 5th republic have been accumulating for a long time. For instance French governmental spending constitutes 56% of GDP, which is the highest figure in Europe. Entering Euro monetary union also had an impact on French economy. If from the year 1999 expenditures for workforce in Germany grew by 10%, than in France they by 30%. Besides, 35 hour working week is also an issue. In addition after introduction of the Euro the share of Paris in global export has reduced twice. The situation is complicated also by the fact that the 5th part of export is comprised by supplies to Southern Europe, where countries are having hard times. Thus there is no point to wait for any vigorous growth of export indices. The other peculiarity of the state is mass “buying French commitment”. It is relevant for practically all goods. As a result competition development is stagnating severely. Even if some product manufactured in France is surpassed in quality by a foreign analogue, consumers are still going to buy the one produced in France. A lot of countries can’t even dream about such “patriotism”. But the fact is that when business is too sure in stable demand for a product, then motivation to develop is significantly undermined. At the labor market situation is also far from being calm. Unemployment rate is at 11%, what of course is not as much as in Spain, where it constitutes 27%. By the way Germany’s index is at 5.4%. Apparently long rivalry between Paris and Berlin is going to end by the victory of the latter one. It is not likely that socialists in France are going to undertake some radical reforms to give labor market more flexibility. Only strong economy growth can change the situation, but serious stimulating measures are needed to attain it.
EUR/USD
The Euro has returned above 1.2850 after recent news from Germany. Bias for the Euro is bullish and next target on the upside is 1.2900. At this level there is a key resistance, which is the main obstacle for a recovery attempt of the currency.
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It seems that every time when capital markets start feeling some optimism, the so called recovery in the US has to be overshadowed by some disappointing statistics. Recent data resume debates that reduction of bonds’ purchasing by the FRS in the second half of the year was premature. The end of stimulus will most likely mean that the FRS is raising interest on federal funds. At the moment the main concern is that QE constriction will lead to higher borrowing prices. In this case it doesn’t necessarily mean the end of current rally of risk or the US stocks. Bernanke and his colleagues have to improve their communication skills and to convince the markets that constriction doesn’t necessarily mean toughening. It is important to differentiate between anticipation of the QE end and anticipations of the first official interest rates’ rise. Speaking about transition from pessimism to optimism, investors seemed to restore their trust to peripheral debt of the Euro zone. It without a doubt helped to downgrade risks, and optimism shifted in favor of the Euro. Now after profitability downgrading beginning form the last year, politicians start to switch their attention to solving double economic issue of low growth pace and high unemployment level in Europe. Nothing of it is similar to what FRS is devoting its prior attention. At the moment the Euro zone is in optimism stage. Weakening of European Central Banks is compensated by the absence of QE from the ECB. Nevertheless the recurrence of the Euro growth is not too strong, and a lot of analysts are skeptical regarding more or less long term perspectives of the Euro. Australian currency continues falling. It kept on depreciating to the lowest figure in almost 11 months. Aussie has weakened after RBA decision to downgrade rates to record low level. That continues to put a lot of pressure on the currency. Aussie as expected is going to trade around 0.97 for 3 months, 0.96 in 6 months, and 0.9 in 12 months.
EUR/USD
At the moment Euro is in a slight correction. Break below 1.2796, which is the minimum of May 17th, is going to bring the currency to 1.2754 with a potential further dip to 1.2740. On the other hand resistance barriers are at 1.2850 and 1.2890 on the upside.
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In spite of acceptable rates on the debt market, there are a lot of woes in Spain. If we look at current statistics and compare it to last year data, we’ll discover deterioration on practically every parameter. Unemployment has exceeded 27%, what leads to increase of “bad credits”. Borrowers simply can’t pay banks and the level of overdue payments is growing every month. Nevertheless most banks are not in a rush to fix their losses. But chances to return the money back are not high. In such situation the Bank of Spain increases pressure on credit institutions in order to make them admit their losses. The regulator insists on restructuring of credits by 200 billion Euros. In case of further delays the country can encounter a new bank crisis, because receiving incremental liquidity from Europe in large volumes will be quite problematic. At the same time new Italian government faces serious problems. Recession continues. By results of the first quarter economy declined by 0.5%, and meanwhile there is no good news suggesting economic recovery. Besides, recent negative statistics has become another reason to rebuke previous government. But new cabinet has a pretty limited amount of tools of anti crisis measures at its disposal, which are able to give a growth impulse to economy. The US statistics Thursday was quite disappointing. Initial Jobless Claims amount reached 360K. It was one of the highest numbers for the index. Therefore strengthening of the labor market recovery hasn’t occurred. It is quite reasonable, that the pair has started growing based on the news. But all that can turn out to be just correction, because in general it is clear that the FRS is going to end QE3. It can become the most powerful strike to the US Dollar. Today there are no influential events in the market unlike yesterday. So a trading ahead of us is going to be rather quiet.
EUR/USD
The Euro sticks to its support around the area 1.2850-1.2860. If the support holds, Euro might bounce and get up to 1.2980-1.2999. Otherwise it may fall with a target of 1.28 on the downside. Further subsequent dip is not ruled out.
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Data on the European GDP for the first quarter came out much worse than forecasted. French economy dipped into recession, showing 0.2% reduction in January and March results. Italy also continues falling. Its GDP has declined by 0.5%. But the main disappointment was German statistics. Data on GDP dynamics for the 4th quarter were revised with downgrading to -0.7%. In the first quarter economy could demonstrate the growth of 0.1% only. In other words Germany was on the brink of falling into recession. In general reduction in Europe constituted 0.2% during the first 3 months of 2013. Thus recession in Europe has been lasting for 6 quarters already. It has become the lengthiest recession in the history of European monetary union. Even after recession, triggered by the fall of American Lehman Brothers, the region has recovered much faster. Forecasts about lower reduction pace were relying on expectations of global demand recovery. But because of auto sequestration in the USA and problems in China there is no point to look for any significant export growth. In such situation downgrading of the ECB interest rate to 0.5% looks quite relevant, but a bit late initiate. Besides ahead of us there is a new stage of discussion about the expediency of tough economic measures. That happens almost every time when there is bad statistics. And situation is deteriorating even in Germany in spite of quite low unemployment and strong domestic consumption. It is quite reasonable to assume that based on such news we’ll receive a recurrence of Euro depreciation. In the US faster than expected deficit decrease was a good news from America. Some analysts suppose that if it continues to decline with the same pace, than the deficit will be just 2.1% of the GDP by 2015. Some tension is of courses caused by quite overextended negotiations between republicans and democrats about raising the governmental debt limit. Apparently the decision is going to be made at the last moment, and default will be most likely avoided.
EUR/USD
Euro is trading above an essential support near 1.2850. Most probably it is going to hold. Market expects the Euro to bounce from the support line. The target on the upside in such case will be 1.2930.
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Meanwhile things are going well for the US Dollar. Recently it has been learnt that the volume of retail sales in the US had grown by 0.1%. It looks like an insignificant change, but against the background of the figure reduction the US Dollar has received an incremental support. Besides an insignificant retail growth against the background of auto sequestration looks quite well. But revision of last month statistics by -0.5% was one of the reasons why Euro’s downgrading wasn’t resumed on Monday. Industrial Production in Europe grew by 1%, what was better than forecasted. Support again has come from Germany. European statistics continues to rely a lot on the major economy in the region. Otherwise the picture would be quite sad. Beforehand France was also a significant influence along with Germany. But current crisis has demonstrated a constantly declining competitiveness of French economy. There are a lot of reasons for that, but the most obvious one is a socialist government. It is hard to expect any breakthrough reforms under such circumstances. In the midterm it can lead to problems similar to ones of Southern Europe. Highest credit rating of France has been lost. It will be quite hard to bring it back. In general most analysts expect the deterioration of economic situation in the region in this or that way. A recession stage has been lasting for months, and unemployment is hitting maximums. Today there is an important statistics on EU GDP for the first quarter. A reduction of a figure is expected. More negative than anticipated data release is not ruled out. In such case number of pessimists will start growing again. As for the bank union initiative, it continues to stagnate. By and large there is no consensus about broadening of the ECB authority. Berlin insists on keeping control functions of national regulators on small and medium banks. Britain refuses to let anyone in their bank system. Overall market sentiments remain bearish.
EUR/USD
Most currencies have weakened against the US Dollar. Apparently they will remain weak for a few days. The Euro can rebound a bit from the range 1.2900-1.2875. Other currencies can also take advantage of it.
USD/JPY
The pair is above 102. The US Dollar benefits on renewed Yen weakness. The pair is expected to target 103 on the upside. Support is at 101. In the short term the bias remains bullish for the Dollar against the Yen.
GBP/USD
The Pound was also under influence of the strong Dollar. It is approaching an essential support at 1.52. It is important for the Pound to withhold and stay above the aforementioned level. Weak Euro continues to have pressure on the Pound.
The US Dollar continued to appreciate on Monday, as better than expected retail sales enhanced expectations that the FRS’s going to cease its economy stimulating program later this year. The US Dollar jumped up against the Japanese Yen, the Euro, and other main currencies after release of data, showing that in April retails sales in the US grew by 0.1%, though their fall by 0.5% was expected. That’s one of the main reasons that the FRS is going to stop its program of bonds’ purchasing, to which $85 billion Dollars a month are allocated. This is going to elevate Dollars value. Currently Dollar growth is stronger than before, because it is driven by the major force of the US economy.
Dollar’s growth was also triggered by April data on American labor market presented on the 3rd of May. It showed the decrease of unemployment to 7.5%. It is the lowest figure since December 2008. The growth of the US currency amplified last Thursday after the Dollar’s breach of the level of 100 Yen for the first time in 4 years. On Wednesday there will be a report issued on industrial production. On Thursday we’ll see Consumer Price Index data released. On Thursday the Bank of Japan will present its monthly policy statement. But no serious changes are anticipated here. Let’s take a look at commodities’ markets. Precious metals remain pretty weak. Gold rebounded a bit from its support around 1425. Nevertheless general outlook for Gold is still bearish. Gold is expected to trade in the range between 1410 and 1460 with a downward bias. Silver has fallen below 23.8 because of general weakness of commodities. Most likely it’ll continue to decline and the target on the downside is 23. Resistance on the upside is around 24.
EUR/USD
The Euro broke below 1.2990 and then bounced back. At the moment it is trading above the previous level. Resistance is at 1.3050. If it fails to rise past the level, it may be pushed down to 1.2900.
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On weekend there was a meeting of finance ministers of G7 in England. Everybody agreed on a statement, that global economy needs much bigger growth than one demonstrated by current statistics. The problem is that Americans and Europeans have a completely different idea about the basis of GDP growth dynamics. In Europe mainly because of German influence it is supposed, that stable long term growth can be attained exceptionally by downgrading of governmental debt and budget deficit. That’s precisely the basis on which Southern Europe states had to act, when they were pressured by Brussels officials setting tough conditions for credits’ allocation. In the long term such a spending cut has to make an economy more competitive. Germany is usually set as an example. It once has passed through tough reforms and now is enjoying the results. But effectiveness of such measures against the background of the crises is still unclear. Still such tough measures have one quite unfavorable effect: in the short term it quite negatively affects an economy. We are witnessing that right now in the recent EU statistics. And there is no guarantee for a positive outcome in the future. More over last researches have turned out to be wrong, as economy can grow even with a high level of debt. Americans are not in a rush to follow European example, though the scopes of debt and deficit can’t be compared. Even $85 billion of yearly auto sequestration do not produce such an impact as mass austerity measures in Europe. The thing is that Europe is more risk averse than America. A deeper problem is demography. Europe continues to age rapidly and by 2050 German population is expected to reduce by 10 million people. On the other side of Atlantic a population growth is quite possible, largely because of immigrants’ inflow. Exactly this can be a long term growth factor in the US. If in Europe they are ready to put up with a 1.5% – 2% growth, in Washington it was claimed a few times that such GDP growth pace is not satisfactory. All goals are higher than 3%.
EUR/USD
EURUSD breaks below 1.2955 support. Deeper decline to test lower support at 1.2747 will most likely occur next week. If it holds, than the dip will be perceived as correction, which may be followed by the rise to 1.3500. If the aforementioned support is breached, then the target on the downside will be 1.2400 area.
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