Weekly review for 23 – 27. 08, 2010

The beginning of the previous trading week was marked with the weakening of the high-yielding currencies. Risk sentiment was low as the market participants were concerned about the negative signs of the world economy rehabilitation. The beginning of the previous trading week was marked with the weakening of the high-yielding currencies. Risk sentiment was low as the market participants were concerned about the negative signs of the world economy rehabilitation.

On Monday the Euro-zone fundamental outlook for the upcoming data was rather weak, which rendered additional pressure on the high-risk assets. The German IFO business climate was expected to show decline from the previous month. Its forecast was set at 105.5 when the previous month resulted at the 106.2 level. The released Euro-zone fundamentals rendered additional pressure on the euro. The Euro-zone purchasing manager index manufacturing decreased to 55.0 from the 56.7 level from the previous month. The Euro-zone purchasing manager index services dropped to 55.6 from 55.8. At the same time the US fundamentals had negative forecasts as well. The existing home sales level was expected to show considerable decrease.

According to the released results of the Australian Parliament elections, none of the political parties managed to reach the majority vote. Therefore, the Australian dollar was under pressure as well.

On Tuesday the European trading session has set the EUR/USD minimums at the level of $1,2600. The greenback strengthened as concerns over the slow-down of the world economy rehabilitation reinforced. During the same day the sterling rate dropped after the statement of the Bank of England representative that Great Britain might experience second recession. And the GBP/USD pair decreased to the $1,5370 range.

It should be mentioned that the growing demand for the safe haven currencies rendered considerable support to the yen, since the expectations for the negative fundamentals in the USA, Japan and Germany influenced risk appetites. On Tuesday the USD/JPY pair renewed its 15-year minimums at the Y84,14 mark.

The impact of the released US housing data was beyond expectations on Tuesday. The US existing home sales decreased for 27.2% (against the forecasted drop of 13.4%), which was the fastest pace of decline since 1999. These results disappointed market participants. As a result, according to the experts’ forecasts, the FRS could undertake additional financial infusion into the economy and hold the interest rate close to zero for an extended period of time. The oil rate dropped after the release of the US fundamentals to the minimums of $71.63 level per barrel.

Wednesday showed some shift in the trading direction. The published German IFO – business climate index for August increased and turned out to be above the forecast (106.7 against expectations of 105.7 and previous mark of 106.2). Therefore the euro received temporary support. The EUR/USD rate reached its trading day maximums at the $1,2730 mark.

But the negative US fundamentals continued to pressure market participants through the Wednesday trading as well. Durable goods orders dropped to 0.3% against the expectations of 3.0%. The US new home sales for July decreased unexpectedly for 12.4% against the forecast of 0.00%. Publication of the weak US fundamentals pressured the oil prices again, and the price dropped to $71.12 per barrel.

On the same day the Standard & Poor’s credit agency reduced the credit rating of Ireland to AA level. As a result, the Euro-zone budget problems became relevant again. And the Swiss frank managed to strengthen against the euro.

According to the speculations, the Japanese government would undertake special measures, aimed to restrict further consolidation of the national currency. And Japanese yen reacted with a decrease. The USD/JPY pair grew and reached Y84,50.

Thursday demonstrated a rebound in the risk sentiment. The EUR/USD rate showed maximums at the $1.2745 mark. Demand for the safe-haven currencies dropped and the greenback decreased against the major currencies. Market participants were waiting for the results of the heads of Central Banks’ meeting, which started on Thursday in the US. According to the speculations, participants would announce of their intentions to keep the measures aimed to stimulate the stable world economy growth.

The released fundamentals on Thursday rendered support to the sterling as well. The CBI reported sales for August turned out to be at the unexpectedly high level of 35 against the previous month’s level of 33 and its forecast of 18. As a result, the GBP/USD pair reached highs at $1.5590 level.

The yen was also under pressure on Thursday. According to the released speculations, the Bank of Japan considered possibilities of the further national monetary policy weakening. The leading Japanese corporations, a high percentage of which products are exported, are concerned over the national currency growth rate. Considerable losses could be originated due to that condition. The USD/JPY pair traded in the range of Y84,60-Y84,90. Minimums were reached at the Y84.47 mark.

During the same day the economic docket showed some positive US data. Initial jobless claims dropped to 473K against expected 485K, and the continuing claims decreased to 4456K against the forecasted 4500K.

The announcement of the head of FRS, Ben Bernanke managed to lessen the investors’ concerns on Friday. He stated that FRS would undertake additional steps to stimulate the American economy. As a result, the euro managed to grow and reach a weekly maximum at the level of $1.2778 and the sterling traded around the $1.55 mark.