Market review for 31.05 – 04.06, 2010

In the beginning of the previous trading week, the euro continued to be under pressure of the debt Euro-zone crises. And the released on Monday fundamentals could not render any support to the euro. In the beginning of the previous trading week, the euro continued to be under pressure of the debt Euro-zone crises. And the released on Monday fundamentals could not render any support to the euro. The Euro-zone economic confidence index for May dropped and turned out to be below the forecast: it factual level of 98.4 against the expected 100.6 mark. During the trading day the EUR/USD pair managed to grow to $1,2335, but then decreased to the range of $1.2280. On Monday the Memorial Day was celebrated in the US, therefore, all financial markets were closed. The financial markets of Great Britain were also closed on Monday due to the Spring Day celebration. The released data in the UK rendered temporary support to the sterling. The growth of the Hometrack Housing Survey influenced the sterling rate increase. And the GBP/USD pair demonstrated its growth to the level of $1,4548.

The political instability in Japan resulted in the drop of the national currency. According to the announced information, the Social-Democratic Party of Japan had left the coalition, and the published survey showed, that more than half of the voters were in favor of the resignation of the Prime Minister. And the USD/JPY grew from the Y90.90 range to the Y91.60 level.

The ECB announcement regarding the possibility, that Euro-zone banks would possibly need to write-down assets in the amount of 195 billion euro this year resulted in a sharp drop of the euro rate on Tuesday. And the unexpected resignation of the German President Horst Köhler raised a new wave of speculations of the political Euro-zone instability, which even worsened the euro dynamics. The additional pressure was rendered from the increased Euro-zone unemployment rate and the dropped Euro-zone PMI manufacturing index. As a result, the EUR/USD pair decreased to its 4-year minimum at the level of $1,2110.

The positive UK statistics, which was released on Tuesday, resulted in the sterling rate growth. The UK PMI manufacturing index for May increased to 58.0 value against the forecasted level of 57.9. Therefore, the GBP/USD pair showed its maximums in the range of $1,4722.

We should mention, that the Reserve Bank of Australia decided to leave the principal rate unchanged at the previous level of 4.50%, which resulted in the drop of the Australia dollar rate. And according to the decision of the National Bank of Canada, the principal rate was raised to 0.5%, just as it was expected. The Canadian dollar strengthened against the American dollar.

The oil rate dropped to the range of $72 per barrel. Investors were concerned by the decreased business activity indicator in the manufacturing sphere of China, which was one of the world major energy consumers.

According to the released information on Wednesday, the positive Euro-zone fundamentals were published, which resulted in the euro strengthening against the US dollar. The Euro-zone PPI index for April grew to the level of 0.9%, which happened to be above the forecast of 0.7%. But the speculations and concerns over the slow rate of the Euro-zone economy rehabilitation prevented the euro from stabilization, and the rate dropped again to its 4-year minimums. Therefore, the EUR/USD pair showed its minimums below the level of $1,2200, and the trading day was closed at the level of $1,2250. The positive US fundamentals were released on Wednesday as well. The pending home sales for April grew for 6.0% against the expected growth of 5.0%. But the sterling turned out to be under pressure after the released announcement that the planned acquisition of the Asian branch of AIG by the British Insurance company Prudential was cancelled. And the GBP/USD pair dropped to the $1,4550 mark after it had reached the $1,4700 maximums on the same day.

The political instability in Japan continued to have a negative influence on the yen rate. The main reason for which was a resignation of the Prime Minister of Japan, Yukio Hatoyama, while the US military base was still settled in the Okinawa. The USD/JPY pair reached the Y92,35 maximums.

On Thursday the market participants reacted to the diverse fundamental indicators, which were released in the leading world economies. The Euro-zone PMI services index turned out to be above the forecast. But the Euro-zone retail sales for April dropped for 1.2% against the expected growth of 0.1%. After the release of this data, the euro demonstrated a sharp drop. The mixed fundamentals were released in the US as well. The ADP employment volume showed increase for 55 thousand against the forecasted growth for 65 thousand. The initial jobless claims happened to be at the predicted level of 453 thousand, which was below the previous volume. And the ISM non-manufacturing composite index for May turned out to be at the previous level of 55.4, which was below the forecasted level of 55.6. The sterling dynamics correlated with the published statistics in Great Britain as well.

The oil prices growth on Thursday resulted in the increased rate of the Canadian dollar.

On Friday the speculations regarding the possibility of the budget crises, which Hungary might face, resulted in the sharp drop of the euro rate. And the negative data of the change in US non-farm payments only intensified this collapse. Therefore, the EUR/USD rate decreased to the $1.1980 minimums.