May 14th 2009, Optimism Diminishes For A Day

This guy seems to really know his stuff. I have been following him for about a month now and like his thought process

The USD staged a bounce in value on Wednesday gaining as optimism subsided in the international markets yesterday. The U.S. released its Retail Sales data yesterday and the Core figure turned in a negative figure of minus -0.5% compared to the upbeat estimate of 0.1%. The outcome of this report was enough to spook the equities markets and Wall Street promptly nosedived. Whether or not the Retail Sales figures were a real catalyst for the drop or merely an excuse used by traders who may have felt the stock markets were overbought can be argued but there is no denying that it showed just how precarious sentiment remains. Today the U.S. will release their weekly Unemployment Claims numbers and the publication is anticipated to show an amount of 608K compared to the previous stat of 601K. The unemployment number today could be enough to stir what is a volatile mix. Taking into account the �good� Non Farm Employment Change outcome from last week, if the weekly Claims number should turn in a worse than expected performance the markets could be spooked further.
After two solid weeks of better than projected data, the Retail Sales released served as a reminder that not all is wine and roses for the U.S. economy and in fact it still faces tough hurdles ahead. There are cautionary warnings still sounding from the hinterlands that foreclosures are continuing to occur at a rapid pace throughout the U.S. and fears are emerging for the commercial property sector. The U.S. will release plenty of data tomorrow including the Empire State Manufacturing Index, the University of Michigan Consumer Sentiment survey, and TIC Long Term Purchases information. The USD was able to show some strength yesterday coming back from the weaker side of its recent ranges against the EUR and the GBP. With quite a bit of data coming from the States today and Europe tomorrow, we should expect to see a whirlwind of action wrapping up this week.

The EUR dropped against the USD on Wednesday as the European Union turned in a negative Industrial Production result of minus -2.0% compared to the estimated drop of -0.9%. Having had two very solid weeks of results against the USD today will be key test of the EUR and its sentiment going into tomorrow�s critical GDP reports coming from all the corners of the continent. The ECB will issue their Monthly Bulletin today which will cover some of statistical data the European Central Bank used when taking into account their rate cut enacted last week. The crux of the matter remains that a loud debate continues to be mounted regarding the ECB�s monetary policy and actions compared to that of the other major central banks which have been quite aggressive in dealing with the crisis. Recessionary data from Europe continues to be rather worse than anticipated and tomorrow�s GDP from Germany and France will be watched attentively for any shocks. Today may produce cautious trading taking into account the risk events ahead.
The Sterling had some cold water thrown on its recent performance by the Bank of England on Wednesday as it lost ground for the first time in several sessions. BoE Governor Mervyn King presented the Inflation Report to Parliament and warned that the U.K. economy remains in a rather unimpressive state and that long term growth prospects remain challenging. The BoE will present its Financial Stability Report today. Tomorrow will be a quiet day for data from the U.K. and this will essentially open the door for the Sterling to trade based on sentiment that lingers due to yesterday�s presentation by Mervyn King and perhaps dollar centric momentum. The Sterling has made significant inroads the past month and has a renewed group of traders who have shown it solid faith. However, like the EUR, the GBP continues to trade near the high end of its range against the USD and it must be questioned whether this upwards trend can keep its pace in the face of challenging economic circumstances.

The JPY continued to show strength against the USD on Wednesday in the face of tumbling international equity markets. The JPY once again showed that it remains a flight to quality in the face of uncertain investment sentiment particularly from the Asian sector. Japanese economic data continues to show less than breathtaking results and its outlook remains uninspiring. Optimism that has lately been expressed by some global investors appeared to have slightly evaporated yesterday and the JPY gained strongly. The price of Gold yesterday maintained its gains from earlier this week and continues to show that caution is a focal point.

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