June 2nd 2009, Can The USD Muster A Rally?

The USD found some stability against the EUR and JPY on Monday but continued to lose ground to the GBP. The ISM Manufacturing PMI data was released yesterday and turned in a slightly better than expected number of 42.8 compared to the estimate of 42.2. U.S. equities turned in another good day of trading as bulls moved forward and have left bears scratching their heads respectively. General Motors made its bankruptcy official but this news has been widely digested into investor sentiment. The U.S. will release its Pending Home Sales figures today and the report is forecasted to have an outcome of 0.4%. Also, in what may seem an ironic twist, the Total Vehicle Sales statistics will be brought forth. Essentially the U.S. markets led by the equities have continued to shake off what would have been considered disaster laden news if this were a normal financial period. Case in point, even with the Preliminary GDP coming in worse than expected last Friday, Wall Street has turned in positive fixtures.
From the data perspective the week will grow in importance, which will culminate with the Non Farm Employment Change publication on Friday. Tomorrow the ADP Non Farm report and the ISM Non-Manufacturing PMI numbers are on the calendar. The USD has had a volatile and weak ride against the EUR and the GBP for a while now. The move has been viewed by many as a short term trend but its weakness cannot be denied and investors should not be complacent to its implications. The results of the USD have been explained largely by an increase in risk appetite as investors have shifted money into equities. However, other USD bears point to the huge amount of debt the U.S. government is on the line for and the belief that in the long term the economy will be riddled with huge expenditures it will find difficult to keep afloat. There are many questions that remain about the U.S. and international economy and talk of a �suckers rally� in the equity markets remain. The USD is at a precarious juncture and many eyes will be watching to see if it is finally able to muster a rally in the coming days.
The EUR ran into some gravity on Monday as it came down from its highs against the USD, it does however remain in the upper reaches of its range. Only the Final Manufacturing PMI data from the European Union was released yesterday and it turned in a slightly better than expected number of 40.7 compared to the target of 40.5. Possibly weighing down on the EUR is the upcoming European Central Bank meeting on Thursday and the various speculative theories investors have weighed in with regarding the possibility of quantitative easing and an additional interest rate cut. It does seem likely that the ECB will have to provide additional fiscal stimulus for the dawdling European economy, but it seems unlikely that they will offer an additional rate cute this week. The broad European Unemployment number will be published today and a figure of 9.1% is the forecast. The EUR has enjoyed a positive run against the USD as the shadow of the European economic problems have seemingly been swept aside and the optimists have enjoyed its momentum. With the ECB standing in the wings, investors will be on the look out for any surprise entrances.
The Sterling continued its run of success against the USD on Monday and is well into a protracted bull run. While economic data from the U.K. continues to send warning signs that a recession is certainly still in affect, this has not dissuaded GBP enthusiasts who have created a startling positive trend. The U.K. released its Manufacturing PMI survey yesterday and it turned in a reading of 45.4, well above the estimate of 44.1. Today the Construction PMI, Mortgage Approvals, and Nationwide Consumer Confidence reports will be published. Tomorrow the Services PMI data is on the calendar and the Halifax HPI has a tentative release date. The U.K. like the U.S. has grown fond of the green shoots outlook as some stability has seemingly come into the markets. The Sterling has benefited from this dash of optimism and has fought back from its lows against the USD in a remarkable fashion. Traders looking to ride the current trend still abound, the question is if and when the gate will be pushed back and the Sterling will come back down to earth.

The JPY lost some ground to the USD again on Monday. While it is tempting to say that Asian investors and others are taking a greater amount of risk appetite this has to be weighed against the fact that Gold continues to trade near the extreme high end of its range above the 970.00 USD mark. One theory is simple enough, based on the optimism that seems to be emerging within certain factions of the marketplace - the JPY could be losing ground on the positive sentiment from those who believe exports from Japan will increase eventually.
Written by: Robert Petrucci
Bforex Chief Commodity Expert and Forex Analyst