July 6th 2009, Spillover Affects May Gyrate Markets

The U.S. was closed for trading on Friday and currencies across the board moved in an extremely quiet manner. Trading today from the U.S. could see a spillover from sentiment that was generated on Thursday due to the rather negative jobless data which served as a reminder that the economic slope remains a perilous one. Talk of �green shoots� can still be heard but they appear to be over matched for the time being with words of caution - that the recession may have slowed but the slump is not over. The ISM Non Manufacturing data will come from the U.S. today and a reading of 45.9 is expected, this would be a better number than last month�s outcome. This release will be the only major statistic from the U.S. for the next couple of days.
The currency markets and in particular the USD has been led by the results from the equity markets the past couple of months. The Dow and S&P will serve as the lynchpin for investors this week but traders will also have to keep their ears pinned to the many speeches coming forth from the upcoming G8 meetings. There has been plenty of speculation that Brazil, China, Russia, and now India are leading a parade which will discuss the possibility of the global economy becoming less reliant on the USD. However the skeptical question that must be asked is how this would be worked out and who would be willing to deliver leadership. In short expect words but no actions from this drama. It is highly unlikely that the USD can be cast aside for many years and dialogues about it possibly being relegated to a less important position seem more like political bantering than economic reality. The USD proved that it is the domain of risk adverse traders on Thursday and its results today and all of this week will likely continue to come based on what type of risk / reward scenarios are playing out on Wall Street.

The EUR traded to the weaker side of its range against the USD on Friday but because of the holiday across the ocean volume was rather light. The broad Retail Sales figures were released from the European Union on Friday and they produced a minus -0.4% result, which was worse than the anticipated number of minus -0.1%. Today the Sentix Investor Confidence survey will be published for Europe and a reading of minus -23.7 is projected. Tomorrow German Factory Orders will be the big release. The EUR has found some doubt crawl into its trading the past week as news about the health of the German banking sector and concern expressed by ECB President Trichet about the economic welfare of the continent has been heard. Like their global counterparts, European investors have seen doubts rise about the prospects for growth seep into their sentiment again. The EUR will find that it moves in a dollar centric mode today as investors deal with the overlap from markets that were basically brought to a standstill on Friday and the repercussions that still need to be filtered from last Thursday�s session.
Sterling continued to find a slippery road on Friday after losing ground on Thursday to the USD. The GBP has had a good run the past few months against the greenback and its results have brought out an army of traders who have tried to pick its top believing it will go lower, leaving some of these traders bloodied. The U.K. released its Services PMI data on Friday and its reading was slightly below expectations coming in with a figure of 51.6 versus the estimate of 51.8. The Halifax HPI has been moved back yet another day and is tentatively scheduled for Tuesday now. Tomorrow will definitely see Manufacturing and Industrial Production figures. News that GBP traders will be watching, will be from the Chancellor of the Exchequer, Alistair Darling, who may be announcing the government�s plans for broader regulatory powers today that will be given to the Bank of England and FSA. The MPC meeting will be taking place Thursday and its results will be likely be that the BoE will release more funds for fiscal stimulus. The Sterling finds itself trading at the lower end of what has been a strong range against the USD. Its results will be watched by all traders this week.

The JPY has shown once again that it is within a classic consolidated range with the USD. The Japanese stock markets lost ground largely on the heels of strong head winds which were generated by the retreat in equities in the U.S. markets on Thursday. The JPY continued to pick up strength from Asian investors that are showing a desire for a safe haven. Risk adverse sentiment has seemingly returned to vogue.

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

The G8 summit starts this Wednesday in L�Aquila, Italy and will last for 2 days. There is much speculation that one of the main focuses will be the greenback and its global reserve status. China has led recent debates on the matter, stating that the instability of sovereign states shouldn�t be a risk for large holders of it�s currency � hence the proposition to create a global reserve currency using the IMF�s SDR (Special Drawing Rights) - a synthetic currency made up of a basket currencies. This is a long-term view driver for the dollar price action.