June 15th 2009, Gauntlet of Recession Will Be Tested

The USD gained against the major currencies on Friday on a day of little major economic data. Range trading dominated the currency markets last week and Friday was no different except the USD did find itself pushing the other currencies back. Trading today could prove to be noteworthy if the greenback were to somehow continue its stronger stance. U.S. equity markets found themselves malingering on Friday as they have done for about the past two weeks. The equities have certainly held onto their gains made since their March lows but they have showed great reluctance as of late to traverse higher. The USD appears to have found strength this past week based on the uncertainty and skeptical approach many market participants still exude. The University of Michigan Prelim Consumer Sentiment survey was released before going into the weekend and turned in a slightly more negative reading of 69.0 compared to the estimate of 69.5.
The Empire State Manufacturing Index is on schedule today and is estimated to have a reading of minus -4.7, which would be worse than last month�s number. Also the TIC Net Long Term Purchases data will be released from the Treasury and a projection of 58.1 billion stands. Tomorrow Building Permit and Housing Starts figures will be presented. The combination of the manufacturing and housing data could be enough to set off the marketplace if enough of a surprise were to be delivered. Wednesday could be a critical day for the market because CPI numbers are on schedule from the States and it will be interesting to see how the higher price of Crude Oil has translated into the gauntlet consumers have had to deal with the past month. While many continue to speak about the possibility of a recovery coming sometime at the end of this year, others point out that stability does not necessarily mean that growth will follow. The USD has shown signs of reawakening. In an environment in which investors appear to be weary, the greenback could prove an important focal point this week.
The EUR has once again come under the shadows of questions being posed about its exposure to its weaker economic brethren in Eastern Europe and the Baltic countries. Both Latvia and Romania appear to be on the verge of financial chaos. The EUR went down against the USD on Friday but was able to close still maintaining a known range. However, traders will keep their sights severely on the EUR this week and gauge if the currency can withstand so many questions. There will be little in the way of major economic data today but tomorrow the German ZEW Economic Sentiment report is due. Calls this weekend continued for Europe to enact a Stress Test that would be similar to the one carried out across the Atlantic and were met with rancor. Concerns about the transparency of the European banking system in the midst of this recession apparently has caused some investors �buyers remorse�, but it remains to be seen if this is a short term sentiment or a sign of bigger things to come.
The Sterling was pulled back on Friday going into the weekend against the USD. There was little in the way of economic data from the U.K. but there was a great swirl of varying opinions offered on the state of the economy. Some politicians managed to speak about the possibility of recovery in the U.K. by the end of the calendar year, yet on the other hand the Confederation of British Industry warned that the recovery may not get started until well into 2010. Today will be a quiet day for economic releases but tomorrow will see inflationary data offered. On Wednesday the Claimant Count Change figures will be published and on Thursday Retail Sales statistics are due. The U.K. like the U.S. is in the midst of a debate in which one side claims there is light at the end of the tunnel and the other side says it is too dark to judge. The GBP remains within the stronger side of its range and traders may be tempted to test the Sterling�s waters with a such significant amount of doubters still around.
The JPY lost ground Friday finding itself on the deeper side of its weak range against the USD. The greenback did appear to get the upper hand on the JPY in trading last week. It will be of keen interest to see if the range that this currency has endured the past couple of months will finally see a true test. Gold dropped significantly going into the weekend and found itself traversing the 935.00 USD mark. The marketplace appears to be standing on a springboard after the results from all corners and we might see some volatility in the coming days because of it.

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