The USD traded in range on Thursday as contradictory sentiment unfolded in the market place. The weekly Unemployment Claims numbers came in worse than expected producing a number of 627K, which was above the estimate of 602K. Final GDP data was also released and its result of minus � 5.5% was slightly better than the forecast of minus -5.7%. The outcome from these reports can be described as nothing less than brutal. However the U.S. equity markets managed to turn in a good day and it came on the back of better than expected quarterly data from the likes of one of America�s retail giants, Bed Bath & Beyond. The company produced higher earnings than anticipated. Ben Bernanke was in the news also on Thursday as he testified in Washington regarding his role in the Bank of America and Merrill Lynch takeover implemented last year. Bernanke was asked pointed questions, but the fact that he handled the questions without being beaten down may have helped the stock market too.
Today will be a relatively quiet day for data going into the weekend. The University of Michigan Revised Consumer Sentiment survey will be published and it is projected to have a reading of 69.2. Also Personal Spending and Personal Income information is on schedule. It has not been a secret that much of the USD value in the currency markets has been predicated on the results from the U.S. equity markets since March. The correlation of an inverse pattern between Wall Street and the greenback has come about mainly because of the relationship of investors with risk appetite as opposed to those who are risk adverse. It may feel like we are hitting a nail with a hammer, when it is mentioned here that the market is a battle of perceptions. Nevertheless, that is exactly what it is and going into this weekend traders will have their sentiment tested once again. On the horizon Non Farm Employment Change numbers are on the calendar next week and until then investors will have to watch equities as a barometer when making their USD decisions.
EUR
The EUR started Thursday on its weaker foot but as the day progressed the EUR stabilized and finished slightly stronger. Industrial New Orders numbers were published for the European Union and posted a negative -1.0% outcome compared to the estimate calling for an unchanged statistic. The Germans will bring forth a few inflation reports today and what investors will watch for is actually deflation. Banks in Europe continue to deal with issues of liquidity and they are being put under the microscope due to their lack of transparency when asked about their exposure to the financial problems not only in Eastern Europe but the recession that continues to roil across the continent. UBS AG announced last night that they sold shares to raise approximately 3.8 billion Swiss Francs and said they expect to report a second quarter loss. Europe like their international counterparts continues to battle the economic downturn and the question for the EUR how it will be perceived by investors in the short term compared to the long term.
GBP
The Sterling traded in a mixed range against the USD on Thursday. The Bank of England issued their Financial Stability Report and it highlighted that problems persists in the U.K. banking sector. The report emphasized that the long term financial health of its institutions remain vulnerable and that levels of liquidity must be monitored closely. The Nationwide HPI which was scheduled for release today has apparently been pushed back until Monday of next week at the earliest. Thus, going into the weekend the GBP will see very little in the way of fresh economic data to help guide investors. The GBP continues to cling onto the stronger edges of its trading range against the USD. Expect to see fairly cautious trading for the Sterling today.
JPY
The JPY moved in a consolidated pattern against the USD on Thursday. These results came about even as the U.S. stock markets turned in rather strong results. News from Japan that the rate of deflation is growing will not please the Bank of Japan, this as Core CPI dropped to minus -1.3% was reported. Gold moved up to the 942.00 USD mark yesterday and Crude Oil climbed also, but most of the other commodity prices showed downward pressure. The JPY continues to trade in a tight range against the greenback and there is little reason to think that this will change today.
Written by: Robert Petrucci
Bforex Chief Commodity Expert and Forex Analyst