EUR/usd
Mariano Rajoy, Prime Minister of Spain, keeps upsetting the markets with his unexpected remarks. Yesterday he kicked the euro from 1.2520 down to 1.2410, pointing out that the country's banking system is “in an extremely difficult situation”. He also mentioned that joint euro bonds could ease the pressure currently imposed on the Spanish banks. Nevertheless, the aforementioned drop was soon followed by another attempt to go up to 1.25, where the pair found itself earlier today. Yesterday afternoon the markets were full of hope that after the phone conference the G7 finance ministers and leaders of the local CBs would take joint actions to handle the EU crisis. But the hopes were not realized and now we can expect actions only from some CBs. In particular, the markets believe that there is a high probability of further QE or extension of ‘operation twist'. However, some members of the fomc are trying to cool the ardour of market participants, saying that the issue is not settled yet and that it is not reasonable to be guided only by employment reports. Indeed the Fed has now got much space for maneuvering: lower inflation pressure, economic slowdown and an opportunity for further QE to satisfy the demand for again safe dollars. But on the other hand, capacity utilization is now within the norms, so here further stimulation of growth will turn into inflation much quicker than in Europe. Today the ECB will announce its decision on the rate (it usually occurs on Thursdays). As is often the case, most of the focus will be pinned not on the decision itself (here we expect keeping the rate at 1.0%), but on the commentary of the CB's head. The Bank is also scheduled to release its economic and inflationary forecasts. Meanwhile, the markets will wait for liquidity injections through LTRO.
GBP/USD
Except for the Queen's Jubilee celebrations, there isn't much news from Britain. Judging by the news released today, the rate of price increases in the country's shops has stabilized after a decline. In May BRC Shop Price Index has grown up to 1.5% annually against 1.3% a month before and the average half-yearly rate of 1.4%. Meanwhile, Lloyds Business Barometer has again declined sharply (-21) after strong figures in May (31) and April (26). At that time we observed the speedup of growth in the USA and made positive forecasts. In May the business community switched over their attention to the troubles in the euro zone and the US affairs turned much less perfect. We still believe that in the coming weeks the dynamics of the pound will be rather poor.
USD/CAD
As it seems, the primary producing countries feel good. Thus, though the rate decision of the Bank of Canada went in line with the market expectations and remained unchanged at 1.0%, the tone of the commentary proved to be much more hawkish than supposed. Despite higher external risks, the commentary said that in case the Canadian economy keeps growing at the same rate, the Bank will have to raise its interest rate soon. This news immediately pushed USD/CAD down. Today, after a short break, the Loonie resumed its growth against the dollar, having touched the support line. The pair is now at 1.0330 just as was forecasted yesterday. But the further course of events is less clear. It is better to stand off this little bird.
AUD/USD
Along with the canadian dollar, its Australian counterpart is also on the rise thanks to positive domestic news. The currency benefited from the GDP data. Over the first quarter of the year the economy has grown by 1.3% against the expected 0.5%. The year to year GDP rate made 4.3%. The aussie bulls are simply obliged to revive on such news. The pair has again gone up to 0.9850 from where it fell at the end of the last week. It's very likely that in the coming weeks the Aussie will look much better than the other currencies.
