The first two sessions of the week did not show any change in the market sentiment. The preferences are set for the U.S. currency but the news, which is expected to come out, makes the investors adjust their positions and sell the dollar against the European currencies and the yen. A market correction, which can be seen now, is caused by strong technical levels, expectations of new guidelines after setting the monetary policy of three reputable Central banks (in Japan, the Eurozone, and the UK), as well as issuing the report of the U.S. Department of Labor. This information is expected to come out on Thursday and Friday. The major news covers the economic statistics, which causes only short-term fluctuations in currency pairs and does not create a basis for a single direction in the market. Yesterday’s data on U.S. showed that in February the activity in the non-manufacturing sector grew more rapidly than expected. Purchasing Managers Index (PMI) for non-production sphere rose to 56.0 from 55.2 in January, when expected to slow down to 55.0. The sub-indices indicating the prospects showed positive dynamics. The New Orders Index increased to 58.2 from 54.4, while Employment Index remained almost unchanged and came out at 57.2 vs. 57.5 previously. The IBD/TIPP report showed in February that the consumer optimism decreased and the index fell to 42.2 from 47.3 previously amid risen taxes and uncertainty caused by sequestration of the budget. Today’s news feed in the US will cover the ADP Private sector employment report in February, which can provide guidelines for the main Employment report. The report is expected to increase to 175 k vs. 192 k in January, which can be considered good dynamics. In addition, the market’s attention will be drawn to the publication of the Beige Book: Federal Reserve’s report on the U.S. economy, which is expected to come out at the end of the trading session on Wednesday. The data on manufacturing orders in January can be less optimistic for the dollar, as it’s expected to decrease by -2.1% m/m after +1.8% m/m previously. As for immediate prospects, the market is likely to continue mixed trading while expecting for Thursday news.
The distrust in the euro remains. The problems in Italy cause investors’ concerns about possible deterioration in the debt markets, where the borrowing costs can rise to their highest, while yesterday’s data on the Eurozone economy did not support the single currency. Further decline in the European currency was stopped by technical levels and the results of the ECB meeting, which are expected to come out. Yesterday’s economic data showed that the Eurozone recession is likely to continue as the 1st quarter of 2013 could be the fourth consecutive quarter of negative GDP growth. The Eurozone Composite PMI decreased to 47.9 in February from 48.6 in January. The PMI index for service sphere in Germany was revised and rose. No major economic data is expected to come out today. The GDP of the Euro area in the 4th quarter is expected to remain unchanged and come out at -0.6% q/q, -0.9% y/y, which shows a negative trend, as GDP fell by -0.1% q/q, -0.6% y/y previously. Looking ahead, we cannot expect optimism about the Eurozone’s economic, as the indicators show weak economic recovery. The aggravation of the political situation amid Italian crisis gives reason to expect that the ECB will keep on softening its positions, which can manifest in M. Draghi’s hints at further monetary-policy easing.
All movements of the British pound against the dollar in the last session were influenced by the economic data. Positive data on the service sphere in Great Britain in February supported the pound, while after the positive data on the service sphere in the US the British currency regained nearly all losses. At the end of the day the cable slightly gained against the dollar. The statistics showed that the Britain’s services sector PMI increased to 51.8 in February from 51.5 in January, which was the highest level since September. The index was expected to decrease to 51.0. This was not the only surprise. The RSI index published by the British Retail Consortium in February came out at +2.7% y/y vs. 1.9% y/y, when expected to decline by 1.0% y/y. The Halifax House Price Index is expected to increase by 0.4% m/m and 1.7% y/y after declining by -0.2% m/m, 1.3% y/y. The market’s attention will be focused on today’s speech of M. King (the Bank of England’s head) and A. Bailey (the Executive Director of the Bank of England) in the parliament, which may cover the monetary policy. Meanwhile, the pound is expected to continue trading in a narrow range and tend to decrease, as the investors will be waiting for the interest rate issued by the Bank of England and increased purchases of securities by the Central Bank. The program of quantitative easing is expected to increase by 30%, which is enough to continue a negative mood for the pound.
The Japanese yen was trading in a narrow range yesterday. The yen strengthened against the dollar, as the Japanese currency was supported by the purchases of Japanese institutional investors, who converted their income into securities denominated not in yen. The data on Japanese economy was released earlier this week and showed that Japan’s monetary base for February expanded 15% compared to the previous year, marking the 10th straight month of increase, which can be considered a positive moment for weakening the yen. No major economic data is expected to come out today. Obviously, the general mood for weakening the yen will remain dominant in the market and keep pressure on Japan’s currency. Selling the yen may resume amid the expectations on easing the monetary policy, which can be carried out at the next meeting of the Bank of Japan scheduled on Thursday.