The USD started the day on its weak foot against the major currencies as a wave of optimism from the previous day of gains on the global equity markets helped spur early trading. However, upon rather less than stellar economic data coming from many fronts on Tuesday, equity markets started to get beaten down and the USD began to gain strength as risk adverse investors stepped forward. The U.S. released its CB Consumer Confidence numbers and they provided a jolt of doubt among the legions of optimists proclaiming that growth is around the corner with a result of 49.3 compared to the estimate of 55.4 and below last month’s outcome of 54.8. Also the S&P/CS Composite HPI survey was published and presented only a slightly better figure of minus -18.1%, beating the expectation of minus -18.7%. Another factor that should be taken into account is that volume on the stock markets apparently was very low on Monday as it gained showing that the market’s positive run was carried forth by a meager few and yesterday’s decline may have been a natural reaction.
Today the ADP Non Farm Employment Change numbers will be brought forth and they are forecasted to be minus -388K compared to last month’s negative -532K figure. Investors will watch this report with a skeptical approach before tomorrow’s data from the U.S. government. Since ADP has changed their numerical approach to garner their results, their numbers have been divergent from the official report. Pending Home Sales are also on tap today from the U.S. and this number could potentially set off some early fireworks before the long Independence Day weekend. The forecast is calling for a 0.7% increase. The ISM Manufacturing PMI reading is on the calendar too. Traders must remain aware that because of the holiday weekend that will ensue on Friday that volume in the U.S. market is light and that tomorrow’s Jobless data will probably cause volatility the remainder of this week as investor position themselves.
The EUR took it on the chin on Tuesday as it gave up its previous day of gains. There was rather less than positive data coming from the European Union as the M3 Money Supply figure produced a 3.7% gain compared to the estimate of 4.6%. Also Private Loan data was weaker than expected as reported from the European Central Bank. Today the broad Final Manufacturing PMI reading will be released and it is anticipated to have a reading of 42.4. However, it is tomorrow EUR investors will be waiting for because of the ECB meeting and any pronouncements on fiscal policy. There is virtually no chance that the European Central Bank will change their interest rate tomorrow taking into account the statements by various ECB members the past month. The question surrounding the ECB has more to do with the level of quantitative easing that the Central Bank is capable of and has the fortitude to carry forth. The EUR will likely also stay under the cloud from economic risk events coming from the U.S. the next two days also. Having lost some ground yesterday, a test of the EUR may arise today until ‘true’ sentiment comes into the market after the jobless data from the U.S. tomorrow.
The Sterling had a tough day because of data released from the U.K. on Tuesday. The Final GDP number came in poorly with a result of minus -2.4% compared to the forecast of minus -2.0%. Also the Current Account Balance figures did not meet expectations. Today the Manufacturing PMI survey results will be published and a reading of 46.4 is anticipated. It must be noted that the Halifax HPI has been tentatively pushed back until tomorrow and Friday will see the Final Services PMI data from the U.K. The Sterling has had a good ride the past few months as it has shown stability and gained against the USD even as recessionary data has been brought forth. The question surrounding the GBP – as with all other major currencies – is one of outlooks. There is a difference between stability and real growth and the debate that is flaring between those who are optimistic against those who are taking a cautious approach is sizeable. The Sterling like other currencies will be dollar centric because of the magnitude of the data that will be coming from the U.S. tomorrow. Until then market participants should expect a test of known trading ranges.
Proving yet again that it is mired within range bound movements, the JPY lost ground to the USD as international equity markets traversed downward. It appears that for the time being that the JPY/ USD pair is performing a dance in which they allow the other to lead in alternating turns and this routine has been going on for a while now. Gold traded lower yesterday as the USD got stronger and found itself around the 926.00 USD level. Commodity prices on a whole have run into resistance lately as questions about supply and demand have come into vogue.
Written by: Robert Petrucci
Bforex Chief Commodity Expert and Forex Analyst