August 4th 2009, Better Data & Equities, Poor USD

Keeping in mind the well known axiom that the �trend is your friend�, the USD continued to get rocked on Monday losing ground to both the EUR and GBP and now finds itself floundering near the very low end of its range against these currencies among others. The U.S. equity market moved upwards yesterday, which should be no surprise if you look at the outcome of currency trading from Monday considering the results from the previous two weeks. The U.S. released its ISM Manufacturing PMI numbers and it came in with a reading of 48.9 compared to the forecast of 46.4. The better data is still considered recessionary but its improvement buoyed investor sentiment certainly. Also the Construction Spending figures were published and produced a gain of 0.3%, beating the negative estimate of -0.5%.
Today the U.S. will present its Pending Home Sales data and a number of 0.6% is expected, which would be an improvement over last month�s report. Tomorrow the ADP Non Farm Employment Change, the ISM Non Manufacturing PMI, and Factory Orders reports will all be brought forth. The data making its way forward today and tomorrow will continue to build in momentum leading up to Friday�s critical government Jobless numbers. The U.S. stock markets continue to be a rocket, leading investors into the realm of speculation based on the seemingly resolute belief which has somehow emerged the past month that a recovery is going to occur. It has been a tough market for traders trying to fight the current trends in the marketplace. The USD has been hit hard by the rally coming from Wall Street and though many are predicting that share prices are bound to hit obstacles, forecasting when equities will exactly tire from their climb is becoming dangerous at best. The USD is losing value on the increased amount of risk, investors have been allowing in their portfolios for the time being.

The EUR continued a significant rally against the USD on Monday and now finds itself at high water marks not seen in months. The Retail Sales figures from Germany were published yesterday and produced a negative -1.8% compared to the favorable estimate of 0.4%. Yet traders managed to push these numbers to the side and found that the upward momentum of the bourses and EUR could not be weighed down. Quarterly reports from Europe and forecasts have been less than rosy but this has not hindered the EUR either. Today will be a quiet day of data from the European Union with only the broad PPI figures due, they are anticipated to show a result of 0.2%, and it may prove interesting to see if investors take into consideration deflationary numbers if they should show up. Tomorrow Retail Sales will be reported for Europe and like today�s release is expected to be slightly better than last month�s outcome. The EUR has traded in a positive manner based on the simple formula that the USD is finding an enormous amount of pressure due to international bourses producing vibrant gains.
The Sterling hurtled forward in a powerful fashion again on Monday as the Manufacturing PMI report from the U.K. produced a good number. The report showed a reading of 50.8, which was substantially better than the forecast of 47.7. The PMI report coupled with the adequate gains from the FTSE bolstered the GBP and brought it into higher territory. Today the Construction PMI release is on schedule and the expected reading is 46.0, which would be an improvement over the previous report. Tomorrow a deluge of important publications are on the calendar with the Manufacturing Production, Services PMI both due and the Halifax HPI tentatively planned. The GBP has performed remarkably well the past five months and its gains the past week including yesterday have been noteworthy, yet the reasons for its gains are debatable. The U.K. continues to be mired like its counterparts in a recession and has many questions ahead of it. However the Sterling�s results cannot be argued and until the current trend reverses � if it does � has proven a solid avenue for its takers.
The JPY keeping true to form, proved remarkably within the confines of rather consolidated trading range against the USD, actually losing some ground to the greenback. International equity markets provided some room for Asian traders to increase their risk appetite again but the story of the JPY and USD pair is one that must be taken into context that both � for the time being � are seen as safe haven currencies and while bourses continue to climb the two currencies have been left to move against each other in a rather non-descript manner.

Written by: Robert Petrucci
Bforex Chief Commodity Expert and Forex Analyst