Weekly market review for 9 – 13. 08, 2010

The beginning of the previous week saw the continued weakening of the greenback. US dollar traded at its 3-months minimum level on Monday morning against the euro due to the expectations for the FRS meeting. The beginning of the previous week saw the continued weakening of the greenback. US dollar traded at its 3-months minimum level on Monday morning against the euro due to the expectations for the FRS meeting. According to the forecasts, the FRS policy announcement would include additional measures aimed to stimulate the economy. Market participants did not expect the principal rate to be increased. At the same time the released positive Euro-zone fundamentals, which should not be underestimated, supported the euro. The Bank of France business sentiment turned out to be at the 101 level, according to the expectations. And the Euro-zone Sentix Investor confidence was 8.5 against its forecast of only 1.6. The EUR/USD pair traded in the range of $1,3270-$1,3300.

We should mention, that the Australian home loans dropped for 3.9% on Monday against the expected decrease for 2.0%. As a result, the speculations regarding the fact that the Reserve Bank would not increase the principal rate, grew even stronger. The Australian dollar rate weakened.

On Monday the sterling was seen to step back from the previously reached achievements. The RICS house price balance for July showed unexpected drop for 8.0% against the predicted increase for 0.5%. Market participants were expecting the Great Britain total trade balance figure to be published on Tuesday.

On Tuesday according to the expectations, the Bank of Japan left the principal rate unchanged at the level of 0.1%. The accompanying announcement stated that Japanese economy demonstrated signs of its moderate rehabilitation and that the Bank of Japan would keep the monetary policy soft. Japanese yen strengthened on Tuesday as the high-risk currencies dropped. The USD/JPY pair traded in the range of Y85.60 – Y86.05.

In the meantime the market participants’ attention was totally concentrated on the meeting of the Federal Open Market Committee and the principal rate decision. Undoubtedly, the principal rate would be left at the previous level, but the FRS decision regarding the incentive measures was vital. The publication of the FRS decision was planned at 18:15 GMT. The US Dollar rate grew and strengthened against the euro based on the above expectations.

During the second part of the day according to the forecasts, the FRS principal rate was left unchanged at the historical minimums of 0.25%. Federal Open Market Committee also stated that the rate would be kept at this level for “extended period”. According to the released statement, the economy rehabilitation slowed down. FRS would continue monitoring of the situation and would undertake all necessary measures to normalize its condition. As a result, most major currencies dropped lower against the greenback. According to the expectations, the FRS concluded to reinvest its maturing agency and MBS securities in treasuries.

The Australian dollar dropped against the US dollar as the NAB business confidence for July and NAB business conditions for July decreased on Tuesday.

On Wednesday investors were still under pressure of the FRS prognosis for the rehabilitation of the US economy, which was released yesterday. Risk sentiment dropped. As the save-haven currencies were in demand on Wednesday, the US dollar grew against its competitors. The EUR/USD rate decreased and reached the $1,3025 mark.

As a save-haven currency, Japanese yen showed consolidation against the major currencies. The FRS statements regarding weak forecasts for the rehabilitation of the American economy increased the demand for the low-risk currencies. The USD/JPY pair traded around the Y85,00 range.

Wednesday saw the decrease of the sterling, which was a result of the published negative UK statistics from Tuesday evening. In particular, the Nationwide consumer confidence for July dropped below its forecasts: 56 against forecasted level of 61. The expectations of the Bank of England Quarterly Inflation report, which would be released later on Wednesday, pressured the national currency as well. The BOE was supported to reduce its forecasts for the GB economic growth. As a result, the GBP/USD pair showed minimums in the range of $1,5770. The release of the BOE inflation report resulted in the increased speculations regarding the possibility that the principal rate would not be increased in the nearest future.

On the same day the oil prices dropped below $80 per barrel. The negative influence was derived from Chinese fundamentals, which showed the slow-down of the industrial production growth rate. The US dollar strengthening was pushing the oil prices lower as well. Against the background of the greenback consolidation, the gold rate decreased to $1197 per ounce and the silver price dropped to $17.87 per ounce.

The general weakening of the euro continued on Thursday as well. The concerns over the budget problems of the region worried market participants and rendered pressure on the euro. The EUR/USD pair weakened to the $1.2798 mark. The outlook for the European global growth continued to be uncertain. The released Euro-zone statistics showed negative results. The Euro-zone industrial production for June dropped for 0.1% against the expectations of 0.6% growth.

Unexpected increase of the released US jobless claims disappointed market participants on Thursday. The initial jobless claims turned out to be higher than forecasts. The additional negative influence was derived from the quarterly report of Cisco. Investors were looking forward to the release of the US fundamentals on Friday. In particular, the Consumer price index was expected to show growth and the Retail sales forecasts in July showed increase as well.

In the meantime the GBP/USD rate showed maximums around the level of $1,5700. After that the sterling stepped back to the $1.5570 mark. And the yen stepped back from its maximums against the greenback, since the Japanese government could apply special measures aimed to weaken the national currency. The USD/JPY pair reached the maximums of Y85,80.

By the end of the week the euro dropped against the US dollar and reached the $1.2749 minimums. The GBP/USD pair showed considerable decrease to the $1.5560 mark. The released US fundamentals on Friday were positive, as expected. The Consumer price index for July grew above its forecast, and the advance retail sales for July increased for 0.4% against the forecasted 0.5%.