The USD slid further against the other major currencies on Thursday and is now trading at startling levels not seen in months as the greenback�s value has been plundered. Market conditions are dislocated at best at this moment and yesterday�s losses for the USD actually came on a day in which the U.S. stock markets went lower too. The past few weeks have brought out explanations of risk appetite versus safe havens regarding the weakness the USD has shown, but Thursday�s action shows that this is a rather tenuous explanation. Weekly Unemployment Gains were released yesterday and they turned in a result nearly matching expectations with a number of 631K compared to the estimate of 630K. The Philly Fed Manufacturing Index turned in a poor reading of minus -22.6, below the forecast of minus -18.9. There is no major data scheduled from the U.S. today and Monday is the Memorial Day holiday in the States.
An unnervingly large amount of questions are growing among investors. Equity markets have been turning in mixed results this week and the USD has not shown the ability to gain, perhaps share prices will have to have a significant leg down in order for the USD to stop its bleeding. Volumes on equity markets remain low and this has created a huge torrent of skepticism regarding the rally that has transpired since March. Important economic releases are on schedule from the U.S. next week including housing, Core Durable Goods, and GDP numbers. The USD has reached a point of reflection in which core beliefs must be examined. The equity markets appear to be on a dangerous razor�s edge and its results must be taken in context with the fact that the gains have come after a perilous drop the past year and a half. While politicians and other leaders speak about stability in the economy, they are finding it difficult to pinpoint actual growth. How long will the mere mention of the word stability continue to salve investors who want to see fundamental improvement in economic data? Caution is likely to be a critical word for USD traders today, its weakness is apparent to all, but how long will this circumstance continue?
The EUR made significant gains once again against the USD. The European Union turned in its PPI data and the numbers were better than estimated all the way around. The Germans and French both produced improving Flash Services and Manufacturing PMI figures. The EUR reached a four month high against the USD and some analysts have said that part of yesterday�s move may have occured because investors are concerned about the credit worthiness of U.S. Treasury ratings. However, this must be looked at with a rather suspicious eye considering the fact the U.K. in fact was the country which was slapped on the wrist by the S&P ratings service yesterday. (This will be explained more in the Sterling comments below). Italy will release its Retail Sales data today but it will be a rather quiet day of economic numbers elsewhere from the continent. On Monday the German Ifo Business Climate survey will be published. There is no denying the EUR has had a remarkable run against the USD and confidence may be running high among its bulls. However, Europe is mired in a recession like all the other major economic spheres and it does have problems facing it regarding its prospects for growth. While the trend is always the friend of traders and the short term seems bright for the EUR, at some point economic gravity should come back into play.
The Sterling continued to shine on Thursday even in the wake of a downgrade from the S&P ratings service which issued a warning on the credit outlook of the U.K. from stable to negative. The move by the S&P doe not take away the Triple A rating of U.K. Gilts but it does put the British government on notice that its bonds could face such a move. The ability of the Sterling to climb in the face of such news must be taken into the context that many suspected such a notice was probable. Today the U.K. will release its Revised GDP and a number of minus -1.9% is forecasted. On Monday the U.K. will have a banking holiday and this sets the table for a day that could see further volatility for the GBP as investors gear themselves for a long weekend. The Sterling has continued to turn in remarkable strength the past month and its momentum has been strong, but clouds are on the horizon and investors must decide if they carry rain.
The JPY continued to steam ahead against the USD on Thursday climbing to new recent highs against the greenback. The strength in the JPY puts the Bank of Japan in a precarious position in which it might be forced to take further action in order to stem the tide which does Japanese export companies no favors. Gold turned in another very strong day climbing to above 950.00 USD, offering another glimpse into the levels of uncertainty that many investors feel pervade the international marketplace.
Written by: Robert Petrucci
Bforex Chief Commodity Expert and Forex Analyst