June 12th 2009, Cautious and Meek Markets

The USD continued to experience a fairly wicked and swift range while somehow maintaining its stance against the other major currencies. The USD started Thursday off on a weaker tone but as the day progressed began to firm. The weekly Unemployment Claims release from the U.S. turned in a figure of 601K, slightly better than the projection of 614k, but nothing to write home about. Retail Sales figures from both the Core and broad data showed a gain of 0.5%, a tad better than expectations from the two reports. The U.S. stock markets produced rather lackluster gains too. In essence what we are seeing are rather cautious results from Wall Street affect the currency markets and particularly the USD. It appears that traders in the equity markets have become hesitant.
The University of Michigan Prelim Consumer Sentiment survey will be released today and carries an expected reading of 69.5, which would be better than the previous result. The report will be watched by investors but it will have to pull off a major surprise in order to stir the marketplace. One of the factors that have continued to add to the caution that is still prevalent in markets is the continuing saga in Washington D.C. that is being played out between big business and politicians. Kenneth Lewis, the CEO of Bank of America, testified before Congress yesterday and took a grilling regarding the way in which the company took over its rival Merrill Lynch. What is perceptible to all investors is the distaste that many politicians are outwardly showing towards business and this contrast in philosophy may be being translated into market sentiment and the long term outlook of the American economy. With so many questions being asked about the underlying belief in stability and recovery versus the amount of debt being taken on by governments internationally it is no wonder that many investors are concerned and expressing skeptical viewpoints. Going into the weekend the USD continues to look as if its value will be a direct recipient per the safe haven levels investors feel they need.
The EUR began the day with good results but faltered as the day went on and found itself in familiar ground. European economic data was light on Thursday. The French did release their Final Non Farm Payrolls data and it did turn in a negative -1.2% result, which was worse than the forecast of 0.9%. Not making much of a storm yesterday was the publication of the ECB Monthly Bulletin and perhaps this is a mistake on the part of investors. The Bloomberg news service reported that data it has compiled from the European Central Bank shows that the collective amount of money promised and given as aid to ailing banks and companies during this financial crisis has climbed to over 5 trillion dollars, this is more than the GDP of Germany. Additionally there have been further calls for greater transparency from the European banks to disclose in greater detail the toxic assets that they still hold. Inflation data from Germany and France will be published today but the report that might spur sentiment is the broad Industrial Production release from the European Union today which carries an estimated decline of -0.4%. The EUR has had and interesting run this week, it still is maintaining its gains from the previous month against the USD but is starting to show signs of being vulnerable again.
In what is becoming rather predictable song and dance routine, the Sterling continued to muster strength against the USD. In the midst of a political firestorm and recession that is not going denied in the U.K the GBP has been resilient. Alistair Darling gave a speech yesterday warning that U.K. economy still faces a tough road particularly if the price of Oil continues to build strength. There will be no major economic reports released today but several Bank of England MPC members are scheduled to speak. Making news early this morning are reports starting to circulate regarding Barclays Global Investors being bought out by Blackrock. Developments from this news may actually become the straw that stirs the drink for the Sterling today.
In what has become a repeat performance, the JPY turned in a rather tight range on Thursday against the USD. International equity markets are cautious and this has directly affected the marketplace. Gold continued to stagnate in the 955.00 USD range and this is a tell tale sign that investors are not only uncertain about the direction of the marketplace but exceedingly cautious. The tight range trading we have seen from the JPY this week very well may continue into this weekend.

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