June 17th 2009, Bears Versus Bulls Fight Rages

The USD held onto most of its gains made against the EUR in Tuesday�s trading, while it slipped a little against Sterling and JPY. The housing data released yesterday came out with slightly better than expected numbers but not fantastic. The Building Permits figures produced a figure of 0.52 million compared to the expectation of 0.50 million. In essence the housing numbers were not anything to hang a hat on and this left the door open for the PPI numbers to disappoint the equity markets when they turned in a meek gain of 0.2%, which was below the forecast of 0.6%. What the PPI showed was that prices increased last month, they did so largely because of energy prices, unfortunately across the board in other sectors prices actually showed signs of deflation. The stock markets in the U.S. reacted with a down day, it was not as sharp a decline as produced on Monday but it nevertheless did not rally.
Today the U.S. will release its CPI information and like the PPI yesterday, investors will not be looking for inflationary pressure but actually deflationary numbers. The Core CPI projection is estimated to be 0.1%. Also Crude Oil Inventories will be published. Tomorrow the weekly Unemployment Claims statistics and the Philly Fed Manufacturing Index are on cue. The USD has found itself affected by the prevailing winds from Wall Street. Bulls who expressed their �glee� on Monday that the stock markets went down, because they believed it was a sign of the market acting efficiently and meant another rally would soon follow, may continue to find their sentiment put to the test if bears continue to come out of the closets. Also investors will keep their eyes on speculation that the Federal Reserve will use next week�s FOMC meeting to issue a statement about concerns about premature anticipation of an interest rate hike before year�s end. The U.S. government finds itself in the uncomfortable position of talking �up� stability and the prospects of growth, while tempering any false hopes that this will happen in the short term. We are left in the dangerous position of having to listen to officials who have political ambitions (and want to keep their jobs) and deciphering what is real. The USD showed stability once again yesterday and as long as the equity markets have gray clouds above them the greenback is likely to continue to remain firm.
The EUR now appears to be suffering from the overhang that its banking sector has with questions of transparency and exposure. As the German ZEW Economic Sentiment turned in a positive number of 44.8 compared to the estimate of 35.1, and even the broad European ZEW readings were better than expected, the EUR turned in a lackluster day. Investors were quick to point out regarding the ZEW surveys, that while it is �nice� to see positive sentiment that they would prefer facts in the pudding. It will be a relatively light day of data from Europe with only the broad Trade Balance figures on the calendar. Tomorrow the Italian Trade Balance numbers are due. With data lacking any real impetus unless a major shock is delivered, investors will find themselves looking at developing news from the likes of Latvia and its new budget, which calls into question how realistic the problems facing the country are being dealt with. The EUR has found itself at the mercy of dollar centric sentiment and banking sector rumors and this will continue today.
The Sterling found a whiff of footing and gained on the USD on Tuesday showing once again that it has a foundation of stability that cannot be ignored in cautious markets. The U.K. did release its CPI numbers and they came in with a positive outcome of 2.2%, more than the forecast of 1.9%. The number produced however was significant because it fell back in line with the Bank of England�s target range. Today the Claimant Count data is due and it carries an expectation of 61.8K, which would be higher than the previous result. Also the BoE will release its MPC Meeting Minutes and this will offer a glimpse into the discussions regarding issues such as quantitative easing and other fiscal policy. Having lost ground to the USD on Monday, the Sterling showed the ability to pull of yet another reversal on Tuesday. There is no doubt the GBP is within the stronger side of its range against the USD and its stability has caused some problems for traders who have been trying to battle against it.

As the trading sessions came to a close last night, the JPY showed another gain against the USD as equity markets across Asia declined on fears that growth will be even less than forecasted. The strength of the JPY against the USD is basically a rerun of the same song and dance routine it has followed the past two months of trading in which the currency pair trades in a well practiced range � what some may call �a routine� by now. Gold continued to trade around the 935.00 USD mark yesterday as it seems to have found a floor for the time being in the midst of a strong USD. The cautious markets have once again shown that the JPY continues to be considered a safe haven by a large crowd.

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