June 10th 2009, The King�s Horses and the Economy

The USD gave back some of its gains Tuesday against the major currencies and its biggest drop was against the GBP. The U.S. only released its Wholesale Inventories data and it came in worse than expected with a figure of minus -1.4% compared to the estimated decline of -1.1%. U.S. equities turned in a mixed day, the Dow Industrials was down slightly, and the S&P managed a small gain. The U.S. will release its Trade Balance and Crude Oil Inventories data today. Trade Balance figures are forecasted to show a result of minus -28.8 billion, which would be below the previous month�s outcome. Also being published today will be the Federal Budget Balance report. Tomorrow the weekly Unemployment Claims and Retail Sales statistics are on schedule.
Yesterday�s movement on the USD appeared to be sentiment generated, based on the recent range of the greenback. International equity markets like the U.S. turned in rather cautious results yesterday and basically showed the ability to hold their ground. Today�s data from the U.S. will not likely be enough to stimulate the currency markets in any particularly large fashion however tomorrow�s data could. The results from the employment readings last week will be weighed against Thursday�s results carefully. Investors will need to keep their eyes on the equity markets today and use that as their barometer. Curiously enough in the wake of so many officials trying to sound optimistic about the �stability� the economy is supposedly showing, it appears investors on Wall Street have not bought into the talk the past few trading sessions. Traders have a lot of issues to chew on regarding the depth of the recession and the prospects for a recovery. Complications abound regarding fiscal policy and newly proposed U.S. government measures such as a radical health care plan. Investors will have to consider the legend of Humpty Dumpty and ask themselves if all of the King�s horses and all of the King�s men can put the economy back together again. The USD faces an important trading day having given up some of its gains yesterday and it may be at the mercy of those who want to test its ranges.
The EUR gained a bit on the USD Tuesday after a couple of less than stellar performances. German Industrial Production numbers released yesterday turned in a negative result of -1.9%, the estimate had projected that there would be no change from the previous month. Also the German Trade Balance data was slightly lower than expected. News from Latvia saying that its government has managed to bring some stability to its banking system may have calmed investor sentiment for a moment. Europe like its counterparts continues to face unique challenges. Spain�s unemployment problem continues to grow, Germany�s banking system is raising suspicions, and the overall recession on the continent shows little signs of abating anytime soon. French and Italian Industrial Production numbers will be released today. Also Germany will present its Final CPI data which is expected to be negligible. Having shown a sprig of footing on Tuesday, traders will look to the EUR with keen interest and see if it can sustain its rather high valued range.
The Sterling gained strongly against the USD on Tuesday in what very may well have been a reaction to a market that believes the GBP was oversold in the previous sessions. There was not much in the way of sparkling data from the U.K. yesterday, although the political row that has enveloped Gordon Brown seems to have been swept under the rug for the moment. Today the U.K. will release its Manufacturing Production numbers and it carries an estimate of minus -0.1%. Trade Balance numbers will are also on cue today. The data from the U.K. will be the biggest economic reports for the Sterling this week and investors will be weary of any negative surprises. Having said that, the GBP has had a good run of success for a while now and its results yesterday showed once again that it has a strong group of backers still.
The JPY gained against the USD pushing itself back from the weakest points of its range. International equity markets turned in rather questionable results on Tuesday and the JPY again finds itself within what has become a fairly consolidated channel against the greenback. Gold turned in a better day and climbed to the 958.00 USD mark. The JPY is likely to benefit if cautious results continue on equity markets.

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