June 22nd 2009, Getting Ready For A Branch To Crack

Friday was a rerun of the previous sessions as the USD traded in a known range against all of the major currencies. The USD closed the week on the stronger side of its range against the EUR and against the Sterling. There were no major releases of economic data on Friday and sentiment was mainly from the likes of the equity markets, which also continued their lifeless track into the unknown. Reports surfaced this weekend that insider trading from top corporate management is at a two year high and the majority of the activity is selling. In other words, it appears that top management is attempting to get out of the market after the rally in the stocks that have taken place since March. After a week of consolidated trading dominating the currency markets and stock markets investors should be poised to see a branch or two snap off of the tree and the question is which market is going to crack.
It will be a quiet Monday for data from the U.S. but traders should not be fooled into thinking that things will remain this way for long. Existing Home Sales numbers are due on Tuesday and the FOMC Statement from the Federal Reserve is on Wednesday along with a host of other publications including Core Durable Goods and New Home Sales statistics. Despite recent claims by many that the U.S. economy has stabilized and has the potential to see growth by the end of this calendar year, there remains a loud contingent of disagreement. Unemployment problems and concerns regarding the housing sector are critical and consumer spending isn�t likely to rise significantly until workers are more secure about their long term prospects. The USD in light of these gray clouds has actually continued to show stability. While the USD lost ground during the bear rally in the equity markets since the March lows, the greenback has shown that as fresh concerns about the economy have arisen, that risk adverse investors have given the greenback a whiff of stability. The markets appear to be on a razor�s edge and waiting for another shoe to drop. If drama breaks out in the international markets it is likely to be of a negative nature and that would strengthen the USD.
The EUR continued to find itself lagging on Friday. There were no major economic reports from the European Union but news continues to emerge regarding concerns about the banking sector and government budgets. Calls for more regulation and transparency were heard at the E.U. summit last week and ECB President Trichet apparently has gotten into the act as well. The German Ifo Business Climate survey will be released today and has an estimate of 85.1 compared to the previous outcome of 84.2. German economic sentiment reports have shown improvement for a while now and investors could simply shrug their shoulders at another good outcome. Tomorrow Europe will publish a large dose of PMI surveys and this data may prove more powerful. The EUR found itself trading on its heels last week against the USD and traders will continue to monitor the pressure that comes its way.
The Sterling held its ground against the USD on Friday on a day of rather cautious trading. On a whole the GBP did lose a bit of ground to the USD last week but it came about in what can only be described as whipsaw trading. The U.K. did not release any major economic data on Friday and today will be a quiet day as well. However the U.K. will publish plenty of housing figures this week with mortgage approval and HPI numbers. The U.K. like the U.S has many questions concerning its financial stability and with that in mind BoE Mervyn King will be speaking on Wednesday. The Sterling has been able to maintain its stronger range against the USD the past couple of weeks in the face of indecisiveness in the markets. Yet, with so many questions looming regarding the ability of the U.K. to enjoy a real recovery anytime soon, there are plenty of traders who will attempt to wager against the Sterling.
The JPY traveled within a range on Friday that has become rather well practiced. With global equity markets showing very little in the way of strong faith, the JPY like the USD have found that risk appetite has gone on a diet. Gold essentially continued a parade to nowhere on Friday completing an extreme week of consolidated trading. It was as if Gold traders sunk their feet into cement and refused to move as long the clouds from the financial storm refused to produce rain or clear up. The JPY faces a similar plight, faced with doubts about the international economy investors seem content to use the Japanese currency as a safe haven and wait.

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