May 21st 2009, Ambiguity Affecting The Markets

The USD suffered severe losses on Wednesday against all the major currencies on a day of ambiguous news. Treasury Secretary Geithner while testifying before Congress said that the markets are beginning to heal. On the other hand the Federal Reserve released its FOMC Meeting Minutes and it revealed that the Fed has downgraded its growth forecasts and cautions that the U.S. economy and international economies will be affected by the fizzers caused from the crisis for the next few years. The Federal Reserve also raised the prospect that it will consider purchasing more bonds in an effort to sure up the financial sector. The U.S. stock markets turned in a negative day but they did not collapse and maintained gains scored from the past month of gains. Today the U.S. will release its weekly Unemployment Claims figures and it is estimated to turn in a number of 630K.
The Unemployment Claims will get its fair share of attention and investors are weary of any possible surprises. Also the Philly Fed Manufacturing Index will be brought forth today and it carries a forecast of minus -19.2. Topping this off is another day of testimony from Timothy Geithner which is scheduled on Capital Hill. Yesterday�s poor outcome for the USD cannot have come as a shock but what is troublesome is the amount of contradictory data that is abundant and its interpretation. Today�s data will be the climax for data going into tomorrow�s quiet day of releases and the Memorial Day holiday that will be observed in the U.S. on Monday. The USD is at a critical juncture and it has been clobbered for three weeks on the consistent pronouncements from government officials that stability and some form of recovery are around the corner. Risk appetite has increased and that is apparent in the world�s equity markets. However it must be underscored that a large swatch of doubt continues to be expressed from other corners and though the USD has shown weakness as confidence has grown, the question is how long the optimism can sustain itself.

The EUR had a strong day of results against the USD on day of rather light economic data from the European Union. Germany released their PPI data and it proved deflationary with a number of minus -1.4% compared to the forecast of only minus -0.2%. This outcome shows that the European economy is still very much in a downward cycle, however the EUR continued to trade with strength possibly on the increased risk appetite which has been translated into the international equity markets. Today a slew of Flash PMI data will come from Germany and France. The German Flash Manufacturing PMI is expected to have a reading of 37.0 and the Service data is anticipated to have a figure of 44.3. Investors will watch the German and French numbers carefully but it should be noted that it is a holiday in many countries within Europe today and trading volume may not be robust. The EUR had a significant day of gains on Wednesday and its upward trend against the USD has to be taken seriously. There however are questions still hovering over the European Union and the strength of its move, which has in essence been underway for three weeks now - must be viewed cautiously.
On a quiet day of data from the U.K. the Sterling managed to continue its bull run. Today Retail Sales figures will be released and it carries and estimated gain of 0.5%. The U.K. will also be publishing its Prelim Business Investment and Public Sector Net Borrowing statistics. This data coupled with tomorrow�s Revised GDP could provide fireworks for the Sterling. The U.K. will be on holiday on Monday like the U.S. and because of this traders may become risk averse going into what will be a long weekend. However before the holiday comes, investors will have to deal with today and tomorrow�s numbers in the shadow of a very good performance from the GBP. The ability to maintain and climb within its range against the USD has been stellar and this trend must be watched.

The JPY is a perfect illustration of the contradictory nature of the global marketplace and its condition presently. The JPY turned in a strong day of trading gaining against the USD, this in the face of the worst GDP numbers ever published in modern Japan. The JPY continues to be held high as an example of a safe have in an uncertain market. Gold also continued to climb in value on Wednesday as it broke through the 940.00 USD mark.
Written by: Robert Petrucci
Bforex Chief Commodity Expert and Forex Analyst