The U.S. Dollar Index (USDIDX) rose on Thursday due to the positive macroeconomic data. The decreased number of unemployed per week and inflation in January. Compared to last year, the consumer price index increased by 1.6%. This is below the Fed's target level of 2%. The preliminary manufacturing activity index, calculated by statistical Markit, rose to its highest level since May 2010 and amounted to 56.7 points in February . Now investors believe that the U.S. economy is still able to recover. They expect that the manufacturing ISM PMI index also shows a good growth. This index will be released on March 5. Today, appear the U.S. home sales data for the secondary market. The preliminary forecast, in our opinion, is moderately negative. Note that any key economic indicators from the U.S. are not expected on Monday. This weekend, we expect the meeting of G20 finance ministers which will discuss the impact of the decline in redemption of government bonds by the Fed to emerging markets. The IMF said that perhaps the Fed should not be hurry too much. We believe that in case the Fed slows the redemption program reduction, the U.S. Dollar weakens against other currencies.
Yesterday's economic data from Europe were weak and did not meet the expectations of the Forex market participants. This has caused the weakening of the Euro (fall on the EURUSD chart EURUSD). The PMI fell from its highest level in 31 months. Some investors fear that the Eurozone economy may fall into deflation. In this case, we can expect the tendency of weakening in economic indicators.
As we predicted in the previous review, the Japanese Yen strengthening (fall on the USDJPY chart) has no further developments. Besides the negative economic data from Japan, the expectations of rising in the U.S. government bond yields play an additional role. Selling the Yen and buying the American Treasuries is widely used in curry trade operations. The Yield of U.S. 10-y government bonds has increased since the beginning of February from 2.58 % to 2.75 %. We believe that the sagnificant weakening of the Ien (growth in the chart) may occur when the yield will rise to 3%.
Gold (Gold) started correcting down after its rapid growth. The premium to its London fixing in Singapore and Hong Kong is still kept at $ 1.3 and $ 1.5 per ounce, respectively. The premium in Tokyo fell from $ 0.3 to zero. Large Japanese jewelry firms expect a price correction for physical gold and they significantly reduced their purchase orders.
Today at 9-30 GMT (0) we expect the important retail sales data in the UK. In our opinion, the preliminary forecast testifies in favor of the Pound weakening (GBPUSD). If it is justified, it can drop significantly.
At 13-30 GMT (0) we expect the data from Canada of the same importance. We believe that the preliminary forecasts are moderately negative for the Canadian dollar. Since it had already weakened (rise on the USDCAD chart) in the last three days, it is difficult to say whether the retail sales and inflation are to extend this trend. Many of the Forex market participants count on it and expected movements to around C $ 1,15. In our opinion, it is too early to to talk about such a significant movement. The Bank of Canada meeting is to be held on March 5 where the authorities can reveal their plans for the monetary policy and macroeconomic forecasts.
Deutsche Bank unexpectedly extended the forecast which refers to the fall of the Australian dollar (AUDUSD) by 20% within two years. In its opinion the yield for 10 - year U.S. and Australian government bonds is almost identical. This suggests that the strong Australian dollar is overvalued. Yesterday, this forecast has helped reducing Aussie. An additional factor was the decline in iron ore prices in China. Australia is actively exporting it.
The U.S. Department of Agriculture reported that the increase in soybean (Soyb) acreage was 4% less than expected and amounted to 76.5 million acres. Area planted with corn (Corn) decreased by 3% to 92 million acres. The lowest since 2011/12 season. We believe that the cultivation reduction can support prices for soybeans and corn.