Wednesday Business Events Review

Wednesday the US dollar continued strengthening its positions against European counterparts as currency traders were unlikely to risk. Investors` positions also helped Japanese yen to contest against the major forex currencies, as it remains one of the main reserve currencies.
Yesterday attention of currency market participants was drawn to Italy, home of another G8 economic summit. Chinese delegation headed by Hu Jintao had to quit the summit due to continuing disorder in some regions of Peoples Republic of China. Investors were not encouraged by such a fact as a result traders were not seen to risk that day.
The general sense of the first statements of summit participants is summed up as economic outlook remains mixed as serious risks cannot be ruled out. These statements gave grounds for further forex quotes decline and sharp oil price fall. As a result EUR/USD ended the session reaching 1,3885 level, GDP/USD traded 1,6070.
Thursday the most expected event in economic calendar is considered to be the decision of Bank of England on its benchmark Repo rate. It is expected to remain at the same level of 0,5 percent. Besides, market players should focus on UK international trade balance sheet, which is assumed to perform positive dynamics comparing with the previous period.

Very Bullish on Dollar, Cites World Supply

The dollar may strengthen against most major currencies as a U.S. “explosion of savings” reduces the world economy supply.
“We are very bullish on the U.S. dollar on most major cross rates in the short term, and even more so in the longer term,” as it was mentioned in the report of Carl B. Weinberg, chief economist in Valhalla, New York,. “A global dollar shortage will appear as the U.S. current-account deficit declines.”
The U.S. currency declined 0.5 % to $1.3867 per euro as of 7:22 a.m. London.
Get more detailed information about currency rate changes on the website.

Week Business Agenda

During a week there will be a number of events and the publications, capable to influence the markets, including the currency market. Indeed, the major event will be the result of session of the US Federal Open Market Committee. The decision on a interest rate (likely, without surprises, the rate will remain at the level of 0,0-0,25 %) will be announced on Wednesday evening and also there text of covering message will be available. The latter is one of considerable interest. First, it will reflect FRS`s vision on current economic situation; analysts expect changes in forecasts about the terms of U.S. economy recovery. Then, it may include information concerning the monetary policy led by the U.S. government. In particular, how long still will be the repayment of state bonds. It may also include inflation issues. The key task of the Federal Reserve is to prevent inflation rally and not to waste the appropriate moment to toughen the monetary policy.

Anyway, interest rate is not likely to be reviewed in close outlook. In spite of several signals the U.S. economy keeps on being volatile and vulnerable, negative processes slow but recovery does not seem to be faced soon. In particular, unemployment rate increases, and it may reach the threshold of 10 percent, and such a state in labor market will not give ground for the FRS to raise the interest rate, as low interest rate spurs to some extent the business under these circumstances.
View the detailed information about interest rates of other countries on the website.

18.06 Forex Trading Results

According to The Philadelphia Federal Reserve Bank, its business activity index improved to negative 2.2 in June from minus 22.6 in May. This fact has been recorded as the highest reading since September 2008.

That was considerably above economists' forecasts of minus 17, based on the average predictions among U.S. economists. The manufacturing survey also showed the index's measure of future activity surged to its highest level since September 2003. Philadelphia Fed Index is an indicator of overall economic situation in Pennsylvania, Delaware, New Jersey. If it accounts for economy development if its level is above zero, if not, it indicates recession.

DJIA rose 37.19 (+0.44%) and remains at the level 8534.37. Nasdaq index slid 2.43 points (-0.13%) and keeps at the level 1805.63. Quite unexpected information arguing business activity rise caused a new wave of risk position demand.

Euro declined to an intraday low against the dollar and other currencies in evening trading Thursday as U.S. stocks pared earlier gains.

New Outlook for Investors

For a second day the dollar declined against major currencies on Wednesday after U.S. inflation data cut speculation on the fact that the Federal Reserve would raise interest rates soon.
An increase in stock prices and better economic data in recent months had led investors to think that the U.S. recession was moving to an end and that interest rates may need to rise by year end. "The latest inflation data has obviously reminded market participants that inflation is still not as much of a worry right now," said Samarjit Shankar, director of global foreign exchange strategy at the Bank of New York Mellon in Boston.

He also added: “The market has had to scale back its expectations for a Fed rate hike. That has obviously taken away some element of support for the dollar," he added.

Higher interest rates in the U.S. compared to Europe tend to attract investment flows into the U.S. dollar. Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey. said that observe dollar weakness because the idea is that inflation is not clear right now and that is seen as a positive in terms of the bullish outlook and risk appetite.

View more detailed information on the website or on the forex blog.