Weekly forex review for 13 - 17/05/ 2013

Euro

The GDP data for the euro area in the first quarter of 2013 were once again in negative territory, reaching minus 0.2 % and confirming the fact that the euro zone continues to remain in a recession for the sixth consecutive quarter. The market participants lowered the price of Euro taking into account that the ECB will probably go for further interest rate cuts in the near future. The EUR / USD pair fell to the level of $1.28 on Friday, which is 1.5 % below the close of the previous week.

In details: As it was shown by the data presented by statistical office Eurostat on Tuesday, the industrial production increased significantly in March, thereby exceeded the estimates of experts. The results demonstrated growth by 1.0%, compared with an increase of 0.4% in February. The data recorded the biggest increase since July 2011 beating the average forecasts of experts of raising the index only by 0.6% and brought hopes that the European economy emerged from recession in the period from January to March. However, these results had limited influence on the trading dynamics of the euro. The currency fell against the background of the results of the German ZEW economic expectations index for May which rose by only 0.1 points to 36.4. Economists had expected the growth of index to 39.5. The index fell to 36.3 in April, while analysts were expecting it to be 43.0. On Wednesday, the value of the euro fell sharply against the dollar, which was primarily due to the publication of data on GDP for the euro zone. The GDP result in an annualized basis was fully in line with experts' forecasts showing quarterly decline by 0.2% and yearly by 1%. In the Statistics Bureau reported that most of the major components of GDP showed a significant weakness, but the major contribution to reducing the consumption of had households (fell 0.1%), business investment (down 0.8%) and exports (down to 0, 5%). The EUR / USD pair tried to grow during Thursdays sessions on results of the report published by the Statistics Eurostat for the unadjusted trade surplus. As it was recorded, the surplus of Eurozone has markedly increased in March showing growth by more than two times compared with 10.1 billion euros in February, to a level of 22.9 billion euros. Furthermore, the data showed that the volume of exports to the euro area rose by a seasonally adjusted 2.8% compared with February. At the same time, the volume of imports fell by 1%.

US Dollar: The U.S. dollar strengthened its positions against its main rivals due to much higher growth of the U.S. economy compare with other economics. Against such a background, the USD dollar index closed on Friday by almost 1% higher than in previous week. Additional support for the U.S. currency had hints that the regulator can start reducing the amount of quantitative easing programs closer to the end of the summer.

In details : The reason for the growth of the Dollar index was the yield on U.S. government bonds, which rose to highs of March after the head of the Federal Reserve Bank of Philadelphia Charles Plosser reiterated that the Fed should begin to reduce the volume of the bonds purchasing program as early as next meeting scheduled for June 18-19. "Conditions in the labor market can begin to reduce the pace of purchases at the next meeting of the Fed," - said Mr. Plosser. The dollar got support also after the Commerce Department of U.S. reported that the U.S. retail sales rose by 0.1 % in April, beating the expected decline of 0.3%. This unexpected growth reinforced optimism about fast recovery of the world's largest economy and accelerated demand for the “greenback”. The currency continued to trade higher after the publication of the data on the manufacturing sector of New York and U.S. producer prices. The seasonally adjusted index of producer prices in April demonstrated strongest decline in more than three years dropping by 0.7% amid falling gasoline prices. The support for the dollar was provided by the results of the report of the National Association of Home Builders (NAHB), testifying the increasing confidence among home builders in May after three months of decline. The rise of the housing sector, according to the words of Mr.Vecchio, has been one of the engines for recovery of the U.S. economy, and increase the level of confidence is a positive factor for the dollar. The dollar slowed down its proudly victory’s march against all major currencies on Thursday when the result of the CPI report for seasonally adjusted consumer price index recorded decline in April by 0.4%, compared with decline of 0.2% in the previous month and average forecasts of experts of prediction of the fall the index down by 0.3%. Moreover, submitted this day by the U.S. Labor Department data showed that the number of applications for unemployment benefits in the U.S. in the week May 5-11 increased by 32K and adjusted for seasonal variation was 360K. It was the largest weekly increase since November 2012.The dollar fell against its competitors on this unexpectedly weak data prompting speculations that the Fed will not slow down the programs of bond purchases.

British Pound: The Bank of England released its quarterly inflation report, the result of which in a short time suspended sterling’s drop observed since the beginning of the last week. However, by the end of the week the GBP / USD pair dropped by 1.0%, touching the mark of 1.5170, due to uncertainty about the possibility of keeping the additional easing programs by the new Governor of the Bank of England, Mark Carney who takes office on July 1.

In details: Initially, for the growth of currency contributed presented by the Office of National data on Wednesday data, which showed that by the end of last month the number of applications for unemployment benefits fell substantially, thereby exceeded the estimates of experts. The number of applications for unemployment benefits fell in April for 7300 people to the level of 1.52 million, beating the average forecast of economists of reduction by only 3,100 people. These results also contributed to the decline in the unemployment rate which recorded the significantly lower level of 4.5% less than predicted 4.6%. However, strengthening the currency did not last long, and after the publication of the quarterly inflation report, where the Bank of England informed that the inflation in Britain could rise above 3% in June, and may be above 2% in the next 2 years, the rate of the sterling has markedly declined. This report put some light on inflation situation in country and suggested that the growth of economy may require additional incentives. It was also noted that prior to 2016 the key interest rate increase is not expected. The GBP / USD pair rose to $ 1.5271 then dropped to $ 1.5171 during further sessions.

Japanese Yen: The Japanese yen continued to lose ground against the fact that the Bank of Japan has received support from the "G7" on the proposed program of quantitative easing.

In details: The yen also weaken after the release of economic data in Japan, which recorded that the GDP in the first quarter grew by 0.9 %, while analysts expected it growth only by 0.7%.The USD / JPY pair rose to Y102.67 level, even though the publication of better-than -expected data. The results showed that in quarterly term the economy of Japan grew by 0.9 % in the period from January to March, while in yearly - by 3.5 %.

The Australian dollar: The currency continued its biggest decline. It currency fell on the background of the fact that the survey conducted by the National Bank of Australia, ahead of the release of the federal budget, showed that business confidence fell in April. Furthermore, the commodity prices were under pressure this week thus reducing prospects of Australia's exports as well.