The USD struggled on Tuesday as equities turned in slight gains and the Pending Home Sales data was better than expected. The greenback finds itself at the weak end of its ranges against both the EUR and GBP and many analysts continue to point towards investor risk appetite as the reason, taking into account the rally on Wall Street. Part of the trading impetus that has arisen, is the belief that the U.S. economy is now past the worst of the recession and that stability even if it is represented by negative data, is more encouraging than it was a few months ago. However there remain plenty of skeptics in the marketplace who do not think the current rally in equities is sustainable. Pending Home Sales produced a result of 3.6% compared to the estimate of 0.6%. Worth noting is the number from the Personal Income data which dropped by -1.3%, worse than the expected decline of -0.9%. And what this presents for us, is another case of having to decide if the glass is half full or half empty. While Pending Homes Sales improved again, the figures are coming off of a perilous drop and a negative result in Personal Income levels should not be a welcomed sight.
Today the ADP Non Farm Employment Change numbers will be published and is forecasted to be minus -351K, which would be an improvement on last month�s figure. Also the ISM Non Manufacturing release is scheduled and is estimated to have a reading of 48.1. Other reports will include Factory Orders and Crude Oil Inventories today. Tomorrow the weekly Unemployment Claims statistics are on cue and this will lead directly into Friday�s U.S. Non Farm Employment Change data which is beginning to cast a shadow on investor sentiment. We have seen the USD tumble in value the past few weeks as equities have climbed and the question is � if and when share prices from Wall Street and beyond will begin to face headwinds. The unemployment picture in the U.S. remains a critical lynchpin in order to achieve a full economic recovery, without better conditions within the U.S. work force, they will not be able to be counted on to spend their hard earned dollars as they have done in the past. The USD is at the weaker part of its range against many currencies and if some caution hits the equities markets we could see the greenback find footing.
The EUR continued to mount an impressive run against the USD on Tuesday as it was bolstered by the growing groundswell into equities. The European Union released its PPI figures yesterday and it recorded an increase of 0.3%, barely over the expectation of 0.2%. Today the Final Services PMI and Retail Sales figures will be released for Europe. The PMI data is not expected to change and remain at 45.6, while Retail Sales are anticipated to show a slight gain. Tomorrow the ECB will be announcing their key interest and it is widely believed that there will be no change. Thus investors attention will shift to the always forthright press conference from European Central Bank President Jean Claude Trichet. The EUR has increased in value considerably the past three weeks on heightened risk appetite even as the European Union has shown that it is as vulnerable to the economic downturn as much as its counterparts. After such a swift climb it is natural to wonder if some type of doubts could arise among traders who have participated in the EUR�s trend.
Once again the Sterling showed that it has considerable momentum against the USD. Tuesday�s trading provided a stark reminder that it remains a tough task to step in front of a trend no matter how much you doubt the markets action. The GBP has had a stellar period of returns. The Construction PMI was released from the U.K. yesterday and it produced a reading of 47.0, better than the estimate of 46.0. The Nationwide Consumer Confidence figures recorded a slight gain, coming in with a result of 60 compared to the forecast of 59. Today the U.K. will release its Manufacturing Production statistics and it is anticipated to be unchanged. Also the Services PMI survey is on cue and is expected to have a reading of 51.9, which would be a bit better than the previous result. Tomorrow the Bank of England�s MPC will release its key interest rate but no change is expected. The Sterling has produced strong results even though the U.K. is certainly within the grasp of a strong recession.
The JPY languished within a fairly tight range against the USD. The JPY did lose some ground to the greenback but the pair remains within a considerably dense pattern. Gold did push up as the day progressed on Tuesday, climbing above 963.00 USD an ounce. Gold is trading within the higher realms of its range and it is doing so as the greenback continues to face pressure.
Written by: Robert Petrucci
Bforex Chief Commodity Expert and Forex Analyst