Euro, British Pound in Play as Forex Markets Brace for Interest Rate Decisions (Euro Open)

The Euro and the British Pound May are in focus with back-to-back interest rate announcements from the European Central Bank and the Bank of England headlining the economic calendar. While neither policymaking body is likely to act on benchmark borrowing costs, significant changes in quantitative easing policy could stir heavy volatility.

Key Overnight Developments

• Japanese Corporate Profits, Investment Tumble on Overseas Demand
• Australian Trade Balance Unexpectedly Falls Into Deficit in April
• NZ Commodity Price Report Shows Currency Gains Threaten Recovery

Critical Levels



The Euro recovered a bit of ground overnight after heavy losses in New York trading hours, adding as much as 0.4% against the US Dollar. The British Pound diverged from the single currency, slipping as much as -0.8% ahead of the opening bell in Europe.

Asia Session Highlights



Japan’s Capital Spending fell -25.3% in the first quarter, the largest drop in at least seven years. Annual profits fell by a staggering -69.0%, with profit-to-sales ratio falling to just 1.4%, the lowest in at least 8 years. Profit margins for electronics and car manufacturers suffered the greatest losses, shrinking -6.9% and 7.1% respectively, on dwindling overseas demand. Lackluster investment in expanding or improving production capacity suggests firms are expecting a sluggish global rebound from the current downturn. This worldview is likely to translate into tepid hiring, weighing on consumption and keeping the lid on economic growth.

Australia’s Trade Balance fell into deficit for the first time since July 2008 in April, showing a –A$0.09 billion deficit after posting a revised A$2.3 billion surplus in the previous month. Economists had forecast a A$1.7 billion result ahead of the release. Exports fell -11.3%, the most in at least 6 months, while imports shed -1.7%. Shipments to China fell for the first time since November 2008, losing -14.8%. RBA Governor Glenn Stevens has repeatedly expressed optimism about Chinese economic growth, noting that exports to the south-Asian giant will help Australia weather the current global downturn. Revenues from overseas sales of coal and iron ore, the country’s top export commodities, fell -17.7% and -21.1% respectively.

Although the economy unexpectedly grew in the first quarter, details of the report suggested that much of the result was owed to aggressive fiscal stimulus, raising concerns about the sustainability of such performance in the months ahead. Tellingly, Australian Treasurer Wayne Swan noted that his country was yet to feel the full impact of the global recession, alluding to expectations that overseas demand would continue to fall from current levels. The International Monetary Fund has forecast that world trade volumes will shrink -11.0% in 2009 and grow by a meager 0.6% in 2010.

New Zealand’s ANZ Commodity Price Index revealed that world prices for the country’s top exports rose for the third consecutive month in May, adding 2.7% from the previous month. Prices for dairy, New Zealand’s top export commodity, rose 5% to register the biggest gain in at least 7 months. Most critically, prices measured in terms of the New Zealand Dollar fell for the third consecutive month, the increase in global prices is accounted for by a stronger local currency rather than improved overseas demand. A stronger currency will weigh on exports (which account for 30% of total output) and hamper the economy’s ability to recover, making New Zealand’s goods comparatively less competitive.

Euro Session: What to Expect



Interest rate announcements from the European Central Bank (ECB) and the Bank of England (BOE) headline the economic calendar in the forthcoming session. Looking first at the ECB, traders will be most anxious to see the details of unconventional stimulus measures announced at the last meeting in May. So far, ECB President Jean-Claude Trichet has only said that the bank would move forward on a scheme to “purchase euro-denominated covered bonds issued in the euro area,” saving the details of the plan for this go-around. On balance, the ECB has been notably more reserved than most of its major counterparts in offering monetary stimulus. Such waffling may see the Euro punished as the markets price in a longer path to recovery as well as the political implications of inaction. Indeed, grumbling electorates are increasingly likely to entertain calls to free national monetary capabilities from the ECB’s “measured approach” as recession deepens and unemployment levels rise, threatening the very existence of the currency union itself.

Turning to the BOE, chances for any further easing are virtually nil with benchmark borrowing costs already at just 0.50%. To that effect, the real question will be whether Mervyn King and company will expand their standing quantitative easing (QE) programs. Policymakers unexpectedly boosted their QE efforts by 50 billion pounds – another increase so soon after the last expansion would speak volumes about the bank’s perception of the headwinds facing the economy and could substantially weigh on the British Pound.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro, British Pound in Play as Forex Markets Brace for Interest Rate Decisions (Euro Open)

U.S Economy Awaits ADP Non Farm Employment Figures

The Dollar continued its freefall against all the major currencies despite positive housing data figures from yesterday. Today, at 12:15 GMT, Forex traders will have the ability to enjoy hefty volatility in the market as the ADP Non-Farm Employment Change will be released.



USD - ADP Non Farm Employment Report on Tap - Will USD Weakness Continue?

The dollar dropped against most of its major currency rivals yesterday, as strong U.S. housing sales data reinforced optimism about the health of the global economy, sapping safe-haven demand for the greenback. All good news aside, by yesterday's close, the USD fell sharply against the EUR, pushing the oft-traded currency pair to 1.4310. The dollar experienced similar behavior against the GBP and closed at 1.6588.

The dollar had begun the day staging a modest recovery after Monday's steep drop, but the trend changed quickly as U.S. stocks turned higher, helping to renew the recent rally in higher risk currencies. Analysts said the dollar's failure to recover shows that investors are convinced the we have seen the worst of the global crisis, and only have room to improve, which is encouraging them to buy higher risk currencies and assets.

A leading indicator released yesterday was the Pending Home Sales report. The figure saw its biggest monthly gain in 7.5 years which indicated that the U.S recession was easing. However, it failed to provide strength to the Dollar as investors may be waiting for key data due to be released today to implement their trading strategies.
Looking ahead to today, the most important economic indicator scheduled to be released from the U.S. is the ADP None-Farm Employment Change at 12:15 GMT. Analysts are forecasting this figure to decrease from its previous reading. Traders will be paying close attention to today's announcement as a stronger than expected result may boost the USD in the short-term. Traders are also advised to follow Federal Reserve Chairman Ben Bernanke's testimony at around 14:00 GMT. This testifies is very important as it is very likely to Impact the Dollar volatility. Traders are advised to watch closely, as this is likely to set the pace of the Dollar going into the rest of the week's trading.

EUR - Will the EUR Hold its Recent Gains?

The EUR was affected by two main things in yesterday's trading; the global stock market rally and mixed feelings ahead of Thursday's Interest Rate decision by the European Central Bank (ECB). The U.S. stock market rally led investors to buy-back into the EUR, and dropped the Dollar, as investors looked for returns on risky investments in Tuesday's trading.

The EUR appreciated by around 120 pips versus the USD to close at 1.4300 in yesterday's trading. The EUR/GBP pair closed almost unchanged at 0.8631 ahead of Thursday's Interest Rate decisions for both the Euro-Zone and Britain. Overall, the EUR, which for the last few months has been sold by most traders, is seeing these sell-positions unwind and is now making a small recovery. The question now is can EUR bullishness continue versus the Dollar?

Sentiment in the Euro-Zone economy has brightened in the past week following better-than-expected news. The EUR is showing signs of resilience even though there was volatility throughout non-Euro crosses. It will be crucial for traders to identify how the preceding economic indicators from the U.S., Japanese, and other key economies will affect their positions.

JPY - Yen Experiences Mixed Results against Major Currencies

The Yen completed yesterday's trading session with mixed results versus the other major currencies. The JPY was broadly unchanged versus the EUR yesterday and closed its trading session at around the 136.60 level. The JPY also saw bullishness against the USD as it jumped around 70 points and closed at 95.70.
The Bank of Japan needs to keep an eye on the global economy as the Japan's finance minister, Kaoru Yosano, said the country's worst post-war recession has already hit bottom. But a full recovery might not come until early 2010 as manufacturers gradually lift output from very low levels.

Traders today have very little fundamental news emanating from Japan as the only indicator being released is the capital spending report. Analysts forecast the figure to decrease from its previous reading. This indicator typically generates small amounts of volatility. However, the GBP and the USD appear to be clutching the reins of today's market. Traders would be wise to note its future direction as it usually carries a heavy impact on the other currencies.

Crude Oil - Traders Await Crude Oil Inventory Report

Crude oil rebounded from the day's lows, finishing little changed at $68.20, as the dollar weakened against the EUR, bolstering the appeal of commodities as an alternative investment. Oil prices have risen every day since May 21 on snips of moderately good news from manufacturers, home builders and the U.S. government.
Today, the release of crude oil inventory is likely to help determine the market's next direction for Black Gold. Oil inventories have fallen in each of the previous three reports from the Energy Information Administration but remain close to an 18-year high. The result of this was a dramatic increase of commodity prices. A release of a string of positive economic figures could help continue its bullishness. Therefore, traders are advised now to make some profits as the price of Crude Oil is set to remain volatile in the short-medium term.

Article Source - U.S Economy Awaits ADP Non Farm Employment Figures

Euro Zone GDP to Confirm Economy Shrank at Record Pace in First Quarter (Euro Open)

The second revision of Euro Zone Gross Domestic Product is expected to confirm that the currency bloc’s economy shrank -2.5% through the first quarter, the largest drop since the creation of the single currency. Australia surprised traders overnight as the economy unexpectedly expanded in the three months to March, boosting the Aussie dollar.

Key Overnight Developments

• UK Consumer Confidence Expands For Second Month in May
• Australian Dollar Surges As Economy Unexpectedly Grows in Q1

Critical Levels



The Euro was confined to a narrow range in overnight trading, oscillating in a 60-pip band above 1.4270. The British Pound followed suit for most of the session but prices surged higher to breach the 1.66 level just ahead of the opening bell in Europe.

Asia Session Highlights



UK Consumer Confidence expanded for a second consecutive month in May, according to Nationwide. The metric printed at 53 in May after a revised 51 result in April, the first print above the 50 “boom-bust” level since December 2008. The details of the survey revealed that 57% of respondents expect jobs to remain scarce and only 28% see the economy turning worse six months from now, the lowest percentages since October of last year. Stock market gains and moderating house-price losses likely accounted for the improvement in consumer sentiment: the benchmark FTSE 100 index has added over 30% since early March while house prices rose for the fourth consecutive month in May.

The Australian Dollar surged against major currencies after the economy unexpectedly grew in the first quarter. Gross Domestic Product expanded 0.4% in the three months to March; economists had expected the metric to shrink -0.2%. In annual terms, the GDP growth rate fell to 0.4% from a revised 0.8% in the final quarter of 2008. The result bolsters RBA Governor Glenn Stevens’ argument that Australia will weather the current global downturn better than other industrialized countries. Looking at the details of the report, consumption grew 0.5% and the external balance improved 1.4%. Private and government investment both declined. Aggressive stimulus measures are likely behind the impressive outcome: the central bank has brought interest down to the lowest in 49 years while the government has started to distribute more than A$12 billion in cash handouts to boost spending.

While the result is certainly encouraging, the important question going forward will be if Australia is able to sustain positive momentum once government stimulus dries up. Earlier today, the Treasury’s macroeconomics director David Gruen said he expects a “delayed” economic recovery in testimony to the a Senate committee but added the economy will grow at an annual pace of 4% in 2013-2017. Yesterday, the central bank kept interest rates unchanged at 3% for the second consecutive month but warned that additional easing may be needed given the prospect of medium-term deflation. Following the report, Australian Prime Minister Kevin Rudd and Treasurer Wayne Swan offered their rendition of the “good cop, bad cop” routine: Swan boasted that Australia outperformed other advanced economies and called the GDP figures a “very strong outcome”; meanwhile, Rudd said that the economy was “not out of the woods yet” and cautioned that there is “no guarantee” that the economy will not contract in coming quarters. A reserved outlook appeared to win out, with Swan conceding that Australia has yet to feel the full impact of the global recession.

Euro Session: What to Expect



The second revision of Euro Zone Gross Domestic Product is expected to confirm that the currency bloc’s economy shrank -2.5% through the first quarter, the largest drop since the creation of the single currency. The outlook going forward is decidedly ominous: a survey of economists conducted by Bloomberg expects inflation-adjusted GDP to shrink by a whopping -4.2% this year, greatly overwhelming calls for a -2.8% drop in the United States. Looking further out to 2010, the onset of economic recovery is set to see GDP growth in the States outpacing that of the Euro region by 1.4%. On balance, this suggests the European Central Bank is likely to lag behind the US Federal Reserve in raising interest rates as the rebound materializes, hinting at a bearish long-term bias for EURUSD.

Indeed, the ECB has been notably more reserved than most of its major counterparts in offering monetary stimulus. Although ECB President Jean-Claude Trichet announced that the bank would move forward on quantitative easing with a scheme to “purchase euro-denominated covered bonds issued in the euro area,” details of the program (and thereby its actual commencement) have been delayed at least until the next policy meeting on June 4th. Such waffling may see the single currency punished in the weeks and months ahead as traders price in not only a longer path to recovery but also the political implications of inaction. Indeed, grumbling electorates are increasingly likely to entertain calls to free national monetary capabilities from the ECB’s “measured approach” as recession deepens and unemployment levels rise, threatening the very existence of the currency union itself.

Separately, Euro Zone Producer Prices are set to fall -4.5% in the year to April, the most in over 28 years. Easing wholesale inflation will compound downward pressure on consumer prices from slowing economic growth as lower production costs are passed on via cheaper finished goods, threatening the region with the onset of deflation. Such a scenario stands to commit the Euro area to long-term stagnation as consumers and businesses perpetually hold off on spending and investment, waiting for the best possible bargain.

In the UK, May’s Services PMI is expected to print at 49.5, rising from 48.7 in the previous month. The reading suggests the sector shrank for the 13th consecutive month, albeit at a slower pace.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro Zone GDP to Confirm Economy Shrank at Record Pace in First Quarter (Euro Open)

A Global Stock Market Rally Leads Trading

Strong economic data from the U.S, U.K and China combined with strong equity performances has led to a sell-off of the safe haven currencies and pushed investors to higher yielding, riskier currencies as many see the global recession coming to an end. The encouraging global economic data has also been helping push Crude Oil to the $70 price level.



USD - Dollar Moves on Release of Strong Economic Data

The release of strong economic data from the U.S. economy led to a stock market rally in the U.S. and the rest of the world. This led to strong implications for the Dollar. The Dollar rose against the Yen, whilst dropping against the British Pound. However, there was very little movement against the EUR. The main factors affecting Dollar volatility yesterday were the release of optimistic manufacturing, personal income, and construction figures from the U.S. This led traders to the conclusion that the worst of the economic downturn in the U.S. is over.

The results of the data releases led the Dollar to tumble to an 8-month low against the Pound. The pair closed higher by nearly 230 pips at 1.6445. The greenback rose by nearly 140 pips vs. the Yen to 96.37, as investors dropped the JPY for higher-yielding assets. The Dollar's behavior against the EUR was more stable as the pair remained virtually unchanged, up barely 10 pips at 1.4154. This was mainly due to traders putting their money into riskier investments on both sides of the Atlantic, leading to low volatility in the EUR/USD currency cross.

Looking ahead to today, there are 2 important news events coming out of the U.S. These are the Pending Home Sales data set to be released at 14:00 GMT, and the Total Vehicle Sales figures that will be released throughout the afternoon. Forex traders are advised to take up their positions in the Dollar and its major crosses early in the day as markets are likely to go volatile as Europe also publishes unemployment data later in the day. Additionally, investors are likely to weigh-in on the real value of the U.S. Dollar as the forex market still reacts to Monday's U.S. data.

EUR - Pound Climbs to an 8-Month High Versus the Dollar

The Pound climbed to an 8-month high in Monday's trading versus the Dollar. This was in part due to a global stock market rally, led by the U.S. that was sparked by the release of highly optimistic U.S. economic data. This was what the GBP needed to extend its rally against the Dollar. However, investors dropping lower-yielding currencies such as the Dollar, for higher-yielding ones such as the Pound led to a very bullish Pound yesterday. The GBP also recorded great volatility and gains versus its other major currency pairs.

The Pound rose by a massive 230 pips against the Dollar to around 1.6445. The GBP recorded massive gains vs. the JPY to close nearly 400 pips higher at 158.24, as traders dropped the safe-haven JPY currency for the GBP. The Pound also gained an impressive 100 pips against the EUR to close at 0.8618. These results show a resurgent British Pound, as the global economic situation improves in Britain and the rest of the developed economies. Therefore, as long as long as the global economic situation improves, then the Pound is likely to reap the benefits.

Today is set to be another congested news day for the British economy and the Pound. There is the release of Construction PMI at 7:30 GMT, Net Lending to Individuals and Mortgage Approvals at 8:30 GMT and Nationwide Consumer Confidence figures at 23:01 GMT. It would be a wise move for traders to open their GBP positions both prior to and after these economic data releases, as the pound is likely to be volatile throughout the trading day.

JPY - JPY Tumbles Against its Major Currency Pairs

The JPY tumbled against its major currency pairs yesterday as the Japanese Stock market made big gains. This was ignited by a release of a string of strong economic figures from the U.S. immediately fueling a rally on Wall Street. Japanese shares, especially the automakers, such as Toyota were boosted by the General Motors bankruptcy. This led to signs of optimism that Japan will gain a higher global market share of the auto industry.

The Yen declined by about 440 pips vs. the GBP to close at 158.24. The Yen also made steep declines against the Dollar to close about 140 pips lower at 96.37. The EUR/JPY pair finished higher on Monday by over 200 pips at 136.47. This market behavior came about as traders dropped the Yen for higher-yielding currencies in yesterday's trading. The repercussions of a weaker Yen in the long-term may turn out to be fruitful for the Japanese economy as competitiveness returns to Japan's export market

Crude Oil - Crude Oil Eyes $70 a Barrel

Crude Oil recorded another day of bullishness on Monday, as the black gold extended
its bullish run. Crude closed up $1.25 or 2% in yesterday's trading. This came about as the U.S. released impressive economic data, indicating that the U.S. economy will continue to beat many analysts' expectations. Traders are also still taking into account the optimism of the OPEC meeting from the latter part of last week.

The price of Crude Oil is only likely to keep on rising as long as the global economic situation continues to pick up. In recent months the U.S., Euro-Zone, British, and Chinese economies have signaled that they are getting back on track. This is despite rising unemployment. If the trend continues, then OPEC's forecast may be correct and we may see Crude at $75-$80 sooner rather than later.

Article Source - A Global Stock Market Rally Leads Trading

Australia Holds Rates at 3% But Says Deflation May Prompt Future Easing (Euro Open)

The Reserve Bank of Australia kept interest rates unchanged at 3.00% but said the prospect of medium-term deflation could require further rate cuts. Swiss Gross Domestic Product data headlines a busy economic calendar on tap for European trading hours.

Key Overnight Developments

• Australian Current Account Gap Smaller Than Expected on Imports Drop
• RBA Keeps Rates Unchanged at 3%, Says Deflation May Prompt Future Cuts

Critical Levels



The Euro traded sideways in the overnight session, oscillating around the 1.4160 level. The British Pound followed suit, with prices confined to a narrow band 60-pip band above 1.64.

Asia Session Highlights



Australia’s Current Account Balance deficit narrowed more than economists expected in the first quarter, showing a shortfall of just –A$4.6 billion versus expectations of a –A$5.4 billion result. The improvement came as the drop in Australians’ demand for foreign-made goods outpaced sagging outbound shipments. Imports fell -9.2% from the three months to December 2008, while exports declined -7.5% during the same period. On balance, external trade added 2.2% to overall economic growth in the three months to March. The Reserve Bank of Australia has argued that “signs of stabilization” in global growth (and particularly in China, a key trading partner) will help the larger antipode weather the current crisis better than most other industrialized economies. However, Westpac Banking Corp chief economist Bill Evans expressed skepticism about whether continued improvement in trading terms is sustainable, saying the deficit will likely expand in the second quarter as large declines in coal and iron ore prices weigh on export volume measures.

The Reserve Bank of Australia kept interest rates unchanged at 3.00%, as expected. RBA Governor Glenn Stevens sounded cautiously optimistic, saying the evidence suggested the global economy was “stabilizing” as after most countries committed to aggressive stimulus measures. Stevens suggested that signs of recovery were clearest in China and some other emerging market countries. However, the RBA chief warned that global financial markets remain fragile and credit remains tight. Most significantly, Stevens said that although “monetary policy has been eased significantly…the prospect of inflation declining over the medium term suggests that scope remains for some further [interest rate cuts]”.

Euro Session: What to Expect



Switzerland’s Gross Domestic Product report is expected to show the economy shrank -1.5% in the first quarter, the largest drop in at least three decades. The most recent comparable result dates back to the first quarter of 1991 when the economy shed -1.4%. Separately, the SVME-Purchasing Managers Index is expected to show that manufacturing shrank for the eighth consecutive month in May, albeit at a slower pace than in April. On balance, the ability of these releases to meaningfully weigh on the Swiss Franc seems limited: Switzerland’s troubles are largely a factor of overall weakness in global demand and the surge in risk appetite across financial markets since early March suggests that traders have long since priced in a dismal outcome for the first three months of 2009 and are looking ahead to a broad-based rebound later in the year.

Turning to the UK, May’s housing data is set to show a bit of an improvement from the previous month: Mortgage Approvals are set to rise by 41K, the most in over a year, while Construction PMI is likely to tick up to 39.5 from 38.1 in the previous month. Importantly, the news is only relatively encouraging: results in line with expectations would still see mortgage approvals down -25.6% from a year earlier while a reading below the 50 “boom-bust” level for the PMI metric means the construction sector is still shrinking, albeit at a slower pace. With that in mind, the data does not amount to a significant departure from the economic outlook already priced into the British Pound exchange rate, suggesting sterling is likely to look past the releases to continue taking cues from trends in risk appetite. Indeed, short-term studies show a trade-weighted average of the Pound’s value against top counterparts is now over 85% correlated with the MSCI World Stock Index.

Finally, the Euro Zone Unemployment Rate is set to rise to 9.1% in April, the highest in nearly 4 years. A survey of economists conducted by Bloomberg suggests unemployment will surpass 10% by the end of this year and continue higher through 2010. Mounting job losses will trim disposable incomes and weigh on consumption, the largest component of total economic output. Indeed, GDP growth in the currency bloc is expected to substantially under-perform that of the US and the UK heading into the first quarter of next year, suggesting the ECB is likely to lag behind the Fed and the BOE in raising interest rates, amounting to a bearish bias for EURUSD and EURGBP in the medium- to long-term outlook.

Written by Ilya Spivak, Currency Analyst
Article Source - Australia Holds Rates at 3% But Says Deflation May Prompt Future Easing (Euro Open)

High Volatility might continue this Week

After depreciating consistently over the past few weeks, the USD is now traded over 1.41 against the EUR, and over 1.62 against the GBP. This week on Thursday, at 11.45 GMT, the ECB will deliver its periodical Interest Rates statement. Forecasts show that the number is expected to stay at 1%. Such a decision could create strong volatility for the leading currencies, as many have expected the ECB to force movement in the EUR. Forex traders should prepare for what is shaping up to be a fool of opportunities' trading week.



USD - Dollar Losses Strength at All Fronts

Last week, the Dollar continued its bearish trend against all the major currencies, and the EUR/USD saw a six month high, as the pair was traded at the 1.4150 level.

Last weeks publications from the U.S economy were characterized with contradicting indications. While some showed that the public has retained its faith in the U.S economy, others have shown that it is still early to say that the crisis is behind us. And it appears that until sharp evident will sign the end of the crisis, the Dollar's bullishness could continue.

The main news from the U.S last week were the Consumer Confidence, which delivered a surprising positive result, providing the best figure in 8 months. However, the weekly Unemployment Claims remained above 600K for the 17 consecutive times. This number is simply overwhelming. In addition, the New Home Sales report, which is considered to be one of the most reliable indicators regarding the housing sector, showed a rather disappointing figure, as only 352K new single-family homes were sold during April.

As for the week ahead, a batch of data is expected from the U.S economy, and this could be a fantastic week for traders to enjoy the heavy volatility of the market in order to enlarge their profits. Special attention should be given to the Non-Farm Employment Change expected on Friday, as this indicator tends to have an immense impact on the leading currencies and on top of them the USD. Currently it seems that if the actual result will be similar to forecasts of 520K, a reverse of trends could take place by the weekend.

EUR - EUR Soars on Positive German Data

Last week, traders who went long on the EUR made some significant profits. The EUR saw rising trends against the USD, the GBP and the JPY, as its most impressive uptrend was against the Dollar.

The two main news events from the Euro-Zone last week came from the German economy. Germany holds the largest and strongest economy in the Euro-Zone, and thus the relevant publications from this economy usually have a hefty impact over the EUR.

On Monday, the German Business Climate report was published, and even though it failed to reach expectations, the result was still the best figure in 6 months, showing that businesses around Germany are starting to feel improvement in their current business conditions. Then on Thursday, the German Unemployment Change indicator showed that merely one thousand individuals have lost their jobs during April. This was the best figure in 6 months as well. The combination of the two surveys seems to be 1 of the main reasons that strengthened the EUR against the major currencies.

Looking ahead to this week, the most notable publication from the Euro-Zone will be the Minimum bid Rate, which is of course the European Interest Rates announcement. Currently, analysts suspect that the European Central Bank (ECB) will leave interest rates at 1.00%, however, in case that the ECB will decide to manipulate rates, this will sure have a high impact on the EUR.

JPY - Mixed Signals from the Japanese Economy

During last week's trading session, the Yen saw mixed result against the leading currencies. Whilst the JPY depreciated against the EUR and the Pound, it saw rising trends against the USD.

The leading indicators which were published from the Japanese economy showed mixed signals that could explain the large volatility of the Yen. The Japanese Trade Balance, which measures the difference in value between imported and exported goods during April, delivered an unexpected negative figure, making it the ninth month in a raw on which Japan sees more importing activity than exporting. These figures are devastating for the Japanese economy, which is built on its export. On the other hand, The Preliminary Industrial Production showed an increase of 5.2% in April as opposed to March. This means that the Japanese consumers feel more secure in their economic condition, and this has the potential of pulling the country out of recession.

Ad for this week, traders should pay special attention to the Capital Spending report, scheduled for Wednesday. This report measures the change in the total value of new capital expenditures made by businesses, and is expected to show a 27.1 decrease in the last quarter. If the real result will be similar, a bearish trend for the JPY could take place.

Oil - Crude Oil Breaches the $67 line.

Crude Oil is traded near six month high as a barrel of Crude Oil is currently valued for over $65.

Crude Oil was boosted from the weak Dollar, as many other commodities such as Gold reacted in similar ways to the weakening USD. The one thing that these commodities have in common is that they are all valued in Dollars, and as such, when a dramatic change in the Dollar value itself takes place it usually has an immediate impact on commodities such as Crude Oil as well.

In addition, it seems that the summer is supporting oil's prices as well. As the vacation season begins, more and more air flight companies which were under the risk of filing for bankruptcy, are reporting higher than expected profits, stimulating them to expand their business activity, and therefore dramatically elevate the demand for oil. For as long as demand rises, and the USD depreciated, the prices of Crude Oil could reach higher, maybe even $70 a barrel.

Looking ahead to this week, traders should follow the main news from the U.S economy, as the changes of the Dollar will surely continue to dominant oil's fluctuations. And if the USD will expand its free fall, don't be surprised if a barrel of oil will reach $70.

Article Source - High Volatility might continue this Week

US Dollar Sees Selling Pressure as Chinese Data Boosts Risk Appetite (Euro Open)

The US Dollar saw selling pressure after data showed China’s manufacturing sector expanded for the third consecutive month in May, boosting stock markets on hopes that the Asian giant would help reignite global demand. Australian economic news yielded mixed results in overnight trading. May’s UK Manufacturing PMI is on tap in European hours.

Key Overnight Developments

• Australian Manufacturing Shrinks at Slower Pace, Retail Sales Rise
• Risky Assets See Boost as Chinese Manufacturing Expands for Third Month

Critical Levels



The Euro was confined to a familiar range in overnight trading, oscillating in a 60-pip band above the 1.41 level. The British Pound trended gently upward, testing as high as 1.6245 before retreating back to the 1.62 mark. The US Dollar saw heavy selling pressure overnight as China’s manufacturing sector expanded for the third consecutive month in May, boosting stock markets on hopes that the Asian giant would reignite global demand, but prices retraced ahead of the European trading open.

Asia Session Highlights



Australia’s AiG Performance of Manufacturing Index rose to 37.5 in May, the highest in seven months, rebounding from a record low at 30.1 registered in the preceding month. The reading remains below the 50 “boom-bust” level, suggesting that manufacturing continued to shrink but at a slower pace. Looking at the details of the report, the Production and New Orders components of the metric saw the most improvement while Inventories and Input Prices fell. This is cautiously encouraging news for the sector that employs over 21% of Australia’s labor force: rising orders and depleting inventories suggest firms are seeing a bit of a pick-up in demand, feeding hopes of eventual stabilization in employment and consumption.

Australian Retail Sales continued to trend broadly higher: although receipts added a bit less than expected on a month-to-month basis (0.3% vs. 0.5% forecast), annualized sales grew 6.8% in the year to April, the most since January 2008. Retail activity is likely being supported by fiscal stimulus: the government has provided every Australian with A$950 in cash handouts since March. Sales of household goods outperformed, rising 3.9%. Although consumers’ willingness to commit to bigger-ticket purchases is heartening, it remains to be seen if momentum can be maintained after the fiscal boost is exhausted. Indeed, continued weakness in discretionary spending suggests Australians view the handouts as temporary relief and reflect expectations of lower spending power in the future.

Still, the antipodean economy is hardly out of the woods. TD Securities’ inflation estimate revealed that the annual pace of price growth fell to 1.5% in May, the lowest reading on record, while Company Operating Profits fell much more than economists expected in the first quarter, shedding -7.2%. This highlights that while the pace of decline may moderate over the coming months, a meaningful return to vibrant growth and employment is farther out on the horizon. Indeed, the economy is expected to continue to shrink through the end of this year with a modest rebound seen in the first quarter of 2010.

Euro Session: What to Expect



The UK Purchasing Manager Index is set to show that manufacturing contracted at a slower pace in May, rising to 44.0 from 42.9 in the previous month. On balance, only a print above the 50 “boom-bust” level is likely to have any substantial impact on the British Pound with sector weakness having been priced in for some time now. The data is most likely going to take a back seat to risk trends: US equity index futures are trading higher ahead of the opening bell in Europe suggesting risky assets will continue to advance, threatening safety-linked currencies (most notably the US Dollar) with continued selling pressure.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Sees Selling Pressure as Chinese Data Boosts Risk Appetite (Euro Open)