Slumping once again against the major currencies, the USD found itself grasping for firm ground but struggling to maintain footing. A combination of what can best be described as euphoria and doubt has seemingly taking hold for the short term and diminished the USD. Some investors apparently have begun to buy into the party line that the worst of the global downturn has occurred and say that equities saw their bottom in March. Also edging into the system appears to be doubts about the greenback that have been expressed by respected opinion makers. Having said this, the so called resumption of risk appetite remains ill defined and based more on perceptions than actual facts. The U.S. published its Trade Balance report yesterday and it turned in a number of minus -27.6 billion, better than the expected estimate of minus -29.2 billion. Today Retail Sales data will lead the parade and the Core figure is forecasted to show a rise of 0.1%.
There is no denying that some U.S. data has started to turn in better numbers but concerns remain about the mortgage crisis and the rate of unemployment. Retail Sales will be watched carefully to gauge the sentiment of consumers who have been faced with rather bleak outlooks. The U.S. will release it weekly Unemployment Claims figures tomorrow and this will be watched to see if a positive outcome can be mustered. These numbers will be followed up on Friday with manufacturing figures which will provide more insight into the �stability� of the U.S. economy. The USD has shown weakness across the board the past two weeks and it has shown little desire to reverse this trend. Gold in the meantime continues its upward climb and highlights that some investors may be rather weary of any and all currencies for the moment. It is likely that the USD will continue to face a strong amount of pressure today and that this will continue until something is able to turn the tide.
EUR
The EUR was able to sustain it positive movement against the USD on Tuesday, this as the German inflation reports provided very little in the way of surprises coming in almost exactly in line with the WPI and Final CPI estimates. The European Union will publish its broad Industrial Production data today and a number of minus -0.9% is forecasted, the previous result was minus -2.3%. Tomorrow will be a relatively light day of data from Europe but this will change on Friday with a vast array of GDP reports on schedule from Germany, France, and others. In the midst of this strong run by the EUR against the USD in which the European currency finds itself at the high end of its range, it must be mentioned that storm clouds continue to lurk with strong recessionary numbers and awkward banking data. The IMF issued a statement yesterday saying that the European Union should enact a Stress Test for the banking sector similar to the one from the United States. The E.U. responded to this by issuing a statement that it would conduct an examination sometime before September of the financial institutions. The EUR has certainly begun to find admirers once again with its steady climb in value, however the European currency may find caution begin to seep into its sentiment with the GDP data looming on Friday.
GBP
The shine of the Sterling glistened yet again on Tuesday as it traded near the highs of its recent range against the USD. The U.K. released its Manufacturing Production numbers yesterday and they produced a result of minus -0.1% compared to the estimate of minus -0.8%. The better than anticipated number continued to add to the sentiment that the U.K. economy like its U.S. counterpart has reached a level of stability within this recession. And also like the U.S, the U.K. produced a brighter number in its employment picture with an improved Claimant Count Change. Today the Bank of England will publish its Inflation Report and Governor Mervyn King will present the data to Parliament. There is speculation that the Bank of England may cut its forecast for the growth rate in 2009. It is this type of news which builds the debate among optimists and pessimists regarding the outlook for the long term prospects of the U.K. economy and thus the GBP. The Sterling has had a successful few weeks against the USD but investors will monitor the Bank of England Inflation Report closely today in order to gauge their sentiment.
JPY
The JPY gained on the USD on Tuesday continuing its recent flurry of strength. This came on the heels of mixed returns for international equities. While the rallies within the global bourses continue to bring forth skeptical viewpoints, there is little doubt that the JPY has benefited from a curious blend of risk aversion the past week. Gold ratcheted it upwards momentum on Tuesday and climbed above the 920.00 USD mark, giving yet another clue that investor uncertainty continues to issue red flags.
Written by: Robert Petrucci
Bforex Chief Commodity Expert and Forex Analyst