Forex Trading News July 2009

During last night’s trading session the Single Currency was first affected by Germany’s unemployment figures, while it later found support on the back of rising optimism in the Eurozone as it traded rather roughly between 1.4050 – 1.4100. Confidence regarding the Eurozone economy went up for the fourth consecutive time from 73.2 to 76.0 in July, while consumer confidence also rose from -25 to -23 as a result of government stimulus strengthening the Eurozone’s economic prospects and due to low interest rates.

Bulgaria's new finance minister Simeon Djankov commented that the Bulgarian economy will shrink by 6.3% this year, considering budgetary spending decreases. After the initial assembly of the new administration, which was inaugurated Monday, Djankov stated: “The most recent estimations by the finance ministry's Agency for Economic Analysis and Forecasting prove that Bulgaria’s economy will contract approximately 6.3% in 2009.”

RBC Capital Markets and Barclays Plc believe that investors will lose appetite to invest in assets in Colombia’s Peso, due to the central bank’s obligation to “cautiously observe” the rally of the Colombian currency, which posted the best results of all currencies in the last four months. Colombia’s Peso went up 25% versus the Greenback since March 27, which is the largest increase of the 176 currencies measured by Bloomberg. The rally was caused by a rise in oil prices, Colombia’s main export product, and a result of mounting demand for riskier investments, which attracted global investment to Colombia’s economy, which is mainly based on agriculture.

The Greenback continued to decline versus currencies such as the Euro today, ahead of the US home sales report, which will probably prove that home sales increased considerably, indicating that the worldwide recession is bottoming, resulting in a rising demand for high-yield investments in equities. This week could be the third week of losses for the US Dollar, caused by various factors such as fears concerning the position of the US Dollar as the most important reserve currency and due to optimism in Asian equity markets.

Figures from the Society of Motor Manufacturers and Traders (SMMT) showed that the number of produced vehicles in the UK dropped 30.2% in June compared to June 2008. Despite the recession it appears that the pace of decrease in car production is weakening as the fall in June was the smallest of the present year up to now, according to the SMMT. Paul Everitt, chief executive of the Society of Motor Manufacturers and Traders, commented that UK’s car manufacturing industry was at the commencement of a long period of improvement.

UK’s gross domestic product (GDP) proved today that its quarterly slump was twice as high as estimations by economists, on which the Sterling fell against many of the 16 main currencies. Emerging currencies benefited from increased confidence among traders. For that reason, the Mexican Peso finished a second week of gains versus the US Dollar, which is Mexico’s most important trading partner. Canada's Loonie also went up against the Greenback, as a result of comments by the Australian officials that the nation could already be leaving the slump behind.

The British Pound remained affected during last night’s trading prior to a short period of positive sentiment, caused by the Bank of England’s minutes regarding July’s policy meeting. The BoE voting resulted in 9-0 in favor of maintaining the benchmark rate and continuing the purchase program due to lack of proof to back an adjustment. Still, the Monetary Policy Committee (MPC), a committee of the Bank of England, stated that they will continue to discuss the amount of the asset purchase program, which could leave room for additional quantitative measures.

Steven Englander, chief foreign exchange strategist for Barclays Capital, believes that overseas investors will consider the Greenback as a risky investment due to “significant skepticism” regarding the monetary policy of the United States, on which the Greenback will fall. “On the long-term the US Dollar probably will decrease even more,” Englander commented. “Despite the Department of the Treasury and the Federal Reserve attempting to provide the market certainty, there remain many unanswered questions regarding the structure of fiscal policy and monetary policy.”

The Brazilian currency reached a nine-month record high due to rising metal prices, increasing stock prices and on the back of corporate earnings exceeding expectations, which boosted the Brazilian economy. More improving economic data and continuation of the positive sentiment could continue Real’s rise.

The Australian Dollar reached a two-week record high against the Japanese Yen on the back of rising equities in Asia, which made the Aussie more interesting for yield-seeking investors. In the previous week the Australian currency posted excellent results, boosted by the US figures concerning corporate earnings. Commodities continued to increase, on which the Kiwi (New Zealand Dollar) and Aussie started bullish mostly versus the US Dollar and Japanese Yen, while South Pacific currencies became more attractive. The S&P/ASX 200 index climbed for the fifth consecutive day due to renewed risk appetite among investors.

The Chilean Peso rose on the back of rising US housing starts which were boosted by copper prices; Chile’s main export product, while Argentine bonds climbed to a three-week record high. Santiago Lopez, an economist with Delphos Investments in Buenos Aires believes that traders speculate on a more cooperative administration to collect on outstanding debt with a total value of $20 billion, owned by bondholders who disapproved a reorganization plan in 2005. He also thinks that markets traded on the government being more lenient to restructure statistics agency Indec.

The Japanese Yen, generally considered as a safe-haven investment, climbed once more against almost all major currencies as a result of the suicide attacks in two Indonesian hotels, which created some tension on the Asian financial markets today. The terrorist bombing campaign blasts hit two luxury hotels and killed at least 9 people.

In June unemployment claims in the UK showed the weakest increase in 12 months, proving that the recession is moderating. Jobless benefit claims reached the highest level in a year, rising 23.800 to 1.56 million, according to the National Statistics data. Unemployment in May rose by 281.000; the largest increase since record-keeping started in 1971.

The high-yielding South African Rand showed various weeks of decreases as a result of currency and stock markets facing a new flow of risk aversion. South African construction workers have agreed to end a weeklong strike, on which the Rand climbed today, which increased confidence in the nation on the back of returning stability.

The Japanese economy is improving, on which its administration increased the forecast for the Japanese economy for a third month on the back of improving foreign demand and due to stimulus packages boosting household spending. The situation of the Japanese economy remains worrying despite the weakening recession, the Cabinet Office stated today, while previously it commented that some parts are showing indications of a recovery.

The Czech Statistical Office reported that industrial production in the Czech Republic fell 22% annually in May, adjusted from a 21.7% decline gauged on June the 30th, while industrial production in April dropped 22.1%. Industrial production fell 20.1% year-on-year in May, after revising for working day effects, while it dropped month-to-month, seasonally revised, by 2.1%.

Reuters and the University of Michigan published a report which proved that consumer sentiment in July turned out quite disappointing, partly caused by anxiety regarding the job market. The report demonstrated that the initial July consumer sentiment index resulted in a 64.6 reading, while June’s last reading was at 70.8. The forecasts by economists pointed to a rather reserved reading of 70.0.

The Chilean central bank reduced its benchmark lending rate to the lowest level in its history, while they also announced that this level will be maintained during half a year in order to boost economic growth. The Chilean Peso fell 1.1% to a three-week low, reaching a level of 552.65 per US Dollar.

A concept declaration proved that the G8 summit has resulted in an agreement which aims on avoiding devaluation of their currencies in order to stimulate their exports, followed by disadvantaging other nations. Today, leaders of the G5 will meet the G8 leaders (Russia, Italy, Canada, Germany, the US, France, the UK and Japan), while the summit in L'Aquila, Italy, ends tomorrow.

The Russian Ruble fell significantly on the back of decreasing crude oil prices, which are close to a week of decreases, as a result of fears that the international recession could reduce demand for energy in the following period. Russia is not only the largest country in the world but also the number one energy supplier and Europe’s most important oil provider.

The Pound Sterling dropped more than 200 pips on the back of possible extra quantitative easing by the Bank of England, to be announced at the next policy meeting. It is expected that the current purchase program, which will end soon, will be extended by another £25 billion. The MPC will probably keep their benchmark rate unchanged at 0.5% this Thursday, while the economy continues to face downside risks.

The Eurozone economy indicates a recovery, but it is premature to determine a serious recovery, according to the European commissioner for economic and monetary affairs, Joaquín Almunia Amann. “The Eurozone conditions remain alarming despite the optimistic signs,” commented Almunia, who remained non-committal at a meeting of EU finance ministers.

The US Dollar went up against the 6 most-traded currencies, due to gloomy reports from the UK and US, which stimulated the demand for the safe-haven Dollar. The Mexican Peso, strongly influenced by the US economy, fell for the first time in three weeks on the back of rising US jobless numbers, which led to more concerns with relation to the strength of the US slump.

Outlooks for a swift improvement of the economic situation have been reduced by weak economic figures, such as the US employment data, ending the week rather gloomy. The economy continues to struggle to overcome the slump as US job losses surpassed the forecasts, while figures concerning the Eurozone retail sales and PMI confirmed the current economic mood.

The US and Chinese manufacturing showed that the worldwide slump is weakening, on which the demand for equities increased, inclusive stocks from emerging markets, while the Japanese Yen and US Dollar dropped versus many of their main equivalents. Reports proved that Chinese exports rose, while manufacturing confidence increased less than economist’s estimations. The Japanese Yen fell on these reports versus the Single Currency to the lowest level in two weeks.

The national Hungarian currency climbed to the highest level in six months due to the change in its tax system which should fuel Hungary’s struggling economy that is facing one of the worst slumps among the European Union countries. The Hungarian Forint reached a six-month high versus January 8, as a result of the approved tax reductions in order to boost the Hungarian economy.