Forex Trading News May 2009

Jobless claims dropped last week but did not reach the previously multi-month low. The administration’s unemployment rolls increased again and reached the highest level so far, which was proved by the most recent figures. The report has improved next week’s outlook concerning the employment report of May. Analysts expected that easing job losses indicated to a recovery en general of the job market, but the latest figures implicate that moderating job losses are vulnerable and that employing new staff remains critical.

In the past two months the Chinese Yuan showed the largest drop, caused by China’s central bank reducing the reference exchange rate in order to support the exporting industry.
Yesterday the Japanese Yen dropped versus the US Dollar and against the Euro. In the meantime the political tension in Asia increased, due to the nuclear test by North Korea. This resulted in a less wanted Japanese Yen, while global risk aversion also affected the Yen.

The start of this week turned out sunny due to the results of a survey which proved that German business sentiment progressed in May. In March the German business sentiment reached a record low while it improved for the second straight month in May. The analysis was executed by Ifo Institute for Economic Research and proved that the German business sentiment rose from 83.7 in April to 84.2 in May, while it was estimated at 85. The outlook continues to improve and indicates that the economic output will become more stable at a low level, according to Ifo.

The Dollar dropped versus the Euro to the weakest level since January on the back of credit rating fears. The S&P credit rating group modified the UK rating forecast and traders fear that the US outlook will also be revised.
The Kiwi Dollar (New Zealand Dollar) went up for the fourth consecutive day versus the US Dollar and gained for the second day against the AUD (Australian dollar), stimulated by the indications that the worldwide recession weakens.

In May the downturn, which affects the 16 eurozone economies, weakened further, proved by Thursday’s analyses, which stimulated growth outlooks for the last quarter of 2009. The outlooks continue to forecast a downturn because every value under 50 is considered as a downturn. Nevertheless, the analyses also prove that the downturn is weakening as the closer the outlook is to 50 the less clear the contraction.

The Russian Ruble went up to a new 2-month high versus the US Dollar today on the back of the present oil price that remains an evidence that the depreciation in December, January was excessive. Yesterday the Canadian Dollar rose for the second consecutive day versus the Euro and the US Dollar due to the volatile equity markets, as the oil price increased to nearly $60 a barrel.

The UK inflation exceeded expectations in April and showed the lowest level since January 2008 on the back of easing price pressures after the economy faced the worst downfall since 1979. Today the Office for National Statistics announced that April resulted in a yearly inflation of 2.3% versus 2.9% in March. The yearly rate was slightly under the forecasted level of 2.4% and surpassed the lowest level in January 2008 of 2.2%.

The headline outlook for the eurozone trade balance proved a surplus of 0.4B with the smallest deficit within a year and on a seasonally adjusted basis at -2.1B, while the Euro continues its volatile status. Shipments to the UK and US decreased by at least 25% despite an improvement in overall exports. Demand for machinery, manufactured goods and vehicles declined as well as the demand for energy products. The Euro did not surpass the 20-Day SMA at 1.3423 and traded between 1.3425-1.3475.

The Labor Department announced today that declining energy prices frustrate another major increase in tobacco prices in April, which resulted in an unchanged US consumer price index.
During the last 12 months the Consumer Price Index (CPI) fell 0.7%; the biggest decrease since 1955, while energy prices dropped 20% since April 2008. US deflation concerns among economists and at the Federal Reserve increased.

Today the Indian Rupee decreased versus the Dollar and faced a second bearish day as the Indian elections are unpredictable concerning the definite winner that will create the new government. The Japanese Yen increased yesterday, following a rather weak Asian trading session, provided that markets started to prefer safe-haven assets and currencies and responded to the report of the British central bank concerning inflation.

The Euro rose to a 7-week high versus the Dollar after the confirmation by the European Central Bank that interest rates will remain unchanged. The Pound reached a four month high of 1.5300 due to the fact that the March industrial and manufacturing production exceeded expectations. Manufacturing activity showed the smallest decline in more than a year and fell by -0.1%. Total industrial production contracted by 0.6% while expectations forecasted a -0.9% decline.

In April the weak US housing market recovered, reaching a record level versus January 2008. Housing sales increased for the second month while new buyer inquiries rose at the fastest tempo in nearly 10 years, proved by Tuesday’s data. Despite that the residential property prices in the UK fell by more than 15% and although sales dropped over 40% in the last year, the markets started to improve, which is proved by the Royal Institution of Chartered Surveyors (RICS) latest report.

The Euro started to find support after it fell to a 1.3251 level versus the Dollar due to rising speculations that the European Central Bank may not lower rates which was stimulated by German factory orders surprisingly increasing by 3.3% in March. For the first time in seven months the German factory orders reading turned out positive and drove the EUR/ USD to a 1.344 level. The rise in foreign demand was caused by a 6.1% increase from eurozone members as more signs indicate to a slowing recession.

During the Asian trading session the Euro fell to 1.3250 caused by the news that the Bank of America will need an additional $34 million. The single currency found support as a result of the March Euro-Zone retail sales release. The eurozone showed a 4.2% record fall in consumption while a 2.6% drop was expected. Consumers continue to reduce spending, following the deteriorating recession, as food purchases declined by 5.2%. Nevertheless, the 0.6% decline in March was expected since labor conditions worsen, particularly in the eurozone’s largest economy; Germany.

The single currency traded heavy during last night’s trading session and reached a 1.3441 level while traders anticipate on the producer price report. The inflation indicator proved that factory gate prices dropped by 3.1% on a yearly basis; a 22 years record decrease. The major cause was the 7.3% fall in energy costs while the other components declined by 1.7%, which proved that in general prices are lowered. Nevertheless, the gloomy inflation report did not increase the Euro losses as the single currency recovered and traded higher from its intraday low of 1.3321 after the release.

The Euro reached an intraday high of 1.3348 as the Euro-zone Sentix investor sentiment reading and German retail sales turned out disappointing. German unemployment rose to 7.6%; the highest level over a year, while the poor labor market affected consumer consumption which was expected to increase by 0.2% but dropped by 1.0% in March. The Euro-zone Sentix investor confidence reading was estimated at -28.0 but showed a minor improvement from -35.3 to -34.3. Traders begin to lose optimism about the present situation which frustrates the recovering prospects. The eurozone PMI reading improved for a second month from 36.7 to 36.8.

The Pound Sterling rallied over 100 pips on an increase in mortgage approvals and manufacturing activity. The manufacturing PMI reading improved from 39.5 in March to 42.9, which was mainly caused by increasing new orders from 39.4 to 46.3. The number of mortgage approvals went up to a decade high of 39k, from 38k, while the Bank of England’s accommodative monetary policy starts to ease credit markets. Nevertheless, the total of new lending was disappointed at 40K, which indicates that more efforts will be required. The GBP/ USD traded at 1.4900 with the 4/16 high of 1.5070 as the next resistance level and a break above could lead to the 1/6 high at 1.5375 as the next barrier.