Fundamental review.
The pound was 0.5% higher versus the dollar. The Britain pound bought 1,6499 American dollar.
Last week a lot of the macroeconomic statistics and news was published in Great Britain. Many data carried a negative shade.
- U.K. inflation continued to fall in May but, not for the first time in recent months, the deceleration was much less sharp than expected. Hence, the CPI rose firmly by 0.6 % in comparison with April that, while largely seasonal, was enough to see just a 0.1 percentage point drop in the 12-month rate to 2.2 %. CPI inflation accordingly remains above its 2 % target.
- Recent comments from the BoE have been deliberately cautious about the U.K. economy's recovery prospects.
- Annual average earnings growth accelerated to 0.8 percent in the three months to April. The outcome, which followed a slightly smaller revised 0.3 % decline in March, was above expectations but still low enough to underline the lack of any significant inflationary pressure in the domestic labour market.
- The number of people out of work rose by a further 39,300 on the month to 1,544,800 in May. The rise, which was smaller than expected, lifted the jobless rate by 0.2 % points to 4.8 % from a weaker revised 4.6 percent in April.
- On the ILO measure, joblessness climbed by some 232,000 in the three month to April. The increase took the number out of work to 2,261,000 and lifted the jobless rate to a slightly lower than expected 7.2 %, still its highest level since the second quarter of 1997.
- Retail sales volumes were unexpectedly weak in mid-quarter when volumes fell 0.6 % from April to stand 1.6 % lower on the year.
My colleagues from FBS company and I keep frostily negative forecast on the British pound.

Fundamental review.
Last week EUR/USD has fallen by 1,5 %.
Last week has been sated by the European economy macroeconomic data. The index of business activity in industrial sector has grown to 40.7 points and in services sector to 44.8. Retail sales in April have a little grown up, however, annual dynamics remains negative - retail sales has declined by 2.3%. All other reports carried the extremely negative shade. Gross national product for 4 quarter of 2008 was reduced to 2.5%, the data for 4 quarter has been reconsidered, as a result annual falling of gross national product has made 4.8%. My colleagues from FBS company predicted falling to 4.6 %. The unemployment rate continued prompt growth and has reached 9.2%. Producer prices for April have dropped to 1.0%, and annual falling has reached 4.6%. These are record values from the beginning of indicator calculation since 1980.
The European Central Bank, which sets interest rates for the 16-nation euro zone, held its key rate at 1% and said it will launch a €60 billion program to buy low-risk bonds in July. ECB President, Jean-Claude Trichet, speaking at a news conference following the central bank's decision, forecast the pace of the bloc's sharp slowdown will ease this year. Mr. Trichet called the current 1% policy-rate level "appropriate."
The situation in Europe will continue to remain difficult; the rate of unemployment can already exceed 10% level. Many European countries are subject to risk of sovereign obligations defaults. German chancellor A. Merkel has scarified the US Federal Reserve System and the Bank of England because of their active monetary issue.
However, in view of EUR/USD strong growth which in May has grown by 6,7 % (from the beginning of March euro has risen by 12%!), analysts of the largest European banks (Deutsche Bank, UBS and Barclays Capital) recommend to sell euro. UBS experts don’t exclude that within three months euro can drop to $1,30 level.
Investors, against negative macrostatistics, left highly remunerative currencies, preferring the American dollar and US treasuries.
1/ US Factory Orders index in April has grown only by 0,7%, instead of expected 1,1%.
2/ ISM non-manufacturing index in May has reached 44,0 in comparison with 43,7 in April and contrary to expectations of 45,0. This indicator is above 50 throughout eight months on end, specifying economic activity reduction.
3/ The number of workplaces in the American companies in April has decreased by 545 thousand, according to report of ADP Employer Services.
Payroll employment in May was unexpectedly and significantly less negative than in recent months. But the unemployment rate also was a sharply higher than projected. Nonfarm payroll employment in May fell only 345,000, following a decrease of 504,000 in March and a drop of 652,000 in February. The May drop-off was not as severe as the consensus forecast for a 530,000 decrease. March and February revisions were up a net 82,000. For the latest month, losses were widespread in both goods-producing and services-providing industries.
By major categories, goods-producing jobs fell 225,000 in May, led by a 156,000 drop in manufacturing employment with motor vehicles & parts down 30,000. Construction declined 59,000 while natural resources & mining decreased 10,000 in the latest month. Service-providing payrolls fell only 120,000 in May after dropping 230,000 the month before. The latest decline was led by a 51,000 decline in professional business services, a 30,000 fall in financial activities, and a 22,000 decrease in wholesale trade.
On a year-ago basis, payroll jobs were down 3.9 percent in May, compared to down 3.7 percent the month before.
Wage inflation remained very soft in May as average hourly earnings posted a 0.1 percent gain, matching the rise in April and coming in below the consensus forecast for a 0.2 percent rise. The average workweek edged down to 33.1 hours from 33.2 hours in April.
The yield on the benchmark 10-year Treasury note rose to a seven-month high.
Last week the US dollar has made prompt jerk upwards that can signal about end of American currency downward trend.

Fundamental analysis.
The euro traded at $1.4089, up from $1.3883 Monday. The dollar index, a measure of the greenback against a basket of major currencies, fell to 79.751, down from 80.961 in North American trading Monday afternoon.
The euro traded at $1.4089, up from $1.3883 Monday.
The U.S. dollar declined Tuesday, reversing a steep increase over the past few trading sessions, as investors questioned the long-term staying power of the greenback's recent resurgence.
The dollar fell as a pop in oil prices and stability in U.S. stock markets boosted risk appetite and sent investors into currencies that pay higher yields than the greenback.
The euro recouped some earlier gains after data showed a steeper-than-expected drop in German industrial output.
The dollar index, a measure of the greenback against a basket of major currencies, fell to 79.751, down from 80.961 in North American trading Monday afternoon.
The euro traded at $1.4089, up from $1.3883 Monday.
The dollar registered strong gains last week, jumping after U.S. non-farm payrolls showed a smaller-than-expected loss of jobs during May. U.S. Treasury yields jumped, particularly at the short end, on increasing bets that the Federal Reserve could begin to raise its official interest rate from near zero by the end of the year.
Dollar bears argue that the greenback's recent jump was largely a rebound from technically oversold levels and that fundamentals will favor a return to weakness in the U.S. currency in the near term.
The block of macroeconomic statistics, collected by FBS analysts:
1. Germany - CPI. There were no revisions to headline inflation in May. The final data still have the CPI declining 0.1 percent on the month to show no change on the year, down from an annual rate of 0.7 percent in April.
2. Great Britain - Industrial Production. For once, the industrial sector exceeded expectations in April when output rose 0.3 percent on the month. Moreover, the originally reported 0.6 percent fall in March was halved.
Even so, the increase still left a 3.2 percent drop in production over the latest 3-month period while in the year to April alone, activity was down 12.3 percent.
3. Great Britain - Merchandise Trade. The merchandise trade gap widened out by a larger than expected Stg0.5B to Stg7.0B in April. The deterioration reflected a 2.6 percent monthly rise in imports that more than offset a 0.6 percent increase in exports. The underlying trade deficit performed in much the same fashion, posting an extra Stg0.7B of red ink to reach Stg6.6B as import growth outstripped exports.
4. United States - International Trade. The U.S. international trade gap in March widened to $27.6 billion from $26.1 billion deficit the month before. But the widening was not due to a rise in imports but due to exports dropping a sharp 2.4 percent. Meanwhile, imports slipped 1.0 percent. Oil imports did rise but were offset by other imports falling. The March report paints a picture of contracting demand worldwide. Looking ahead, we may say a widening in the April gap due to higher oil prices boosting overall imports. But there is a good chance that we'll see a further deterioration in both exports and nonoil imports.
5. United States - Treasury Budget. The U.S. Treasury monthly budget report posted a record $20.9 billion deficit in April, a month that since 1983 (not long after the end of the 1982 recession) has seen nothing but budget surpluses.

Fundamental analysis.
On May, 4rd EURUSD holds steady near the previous levels. The European Central Bank, the Bank of England and the Bank of Canada left key rates at the same level. The European Central Bank, which sets interest rates for the 16-nation euro zone, held its key rate at 1% and said it will launch a €60 billion program to buy low-risk bonds in July. Canada's central bank, meanwhile, left its key rate on hold at a record low of 0.25%. The Bank of England also kept its key rate on hold at 0.5%.
ECB President Jean-Claude Trichet, speaking at a news conference following the central bank's decision, forecast the pace of the bloc's sharp slowdown will ease this year. Mr. Trichet called the current 1% policy-rate level "appropriate."
Today the following block of macroeconomic statistics is expected:
1/ Britain Producer Output Price Index for May
2/ Britain Producer Input Price Index for May
3/ Employment index in Canada for May
4/ Unemployment index in Canada for May (previous level – 8,0%, forecast – 8,2%).
5/ Employment Situation in the USA for May. Nonfarm payroll employment fell a very steep 539,000 in April, following a 699,000 plunge in March. The good news was the contraction in jobs eased somewhat. The big question for the May employment report is whether the shrinkage in losses will continue. A second slowing in a row in payroll layoffs will be a boost to equities. On the wage front, average hourly earnings were very weak in April, rising only 0.1 percent and May's number likely will be sluggish, too. Turning to the household survey, the unemployment rate jumped 4 tenths to 8.9 percent in April. If this rate doesn't ratchet upward again in May, it will be a big surprise as it is hard to find an economist not calling for further increases in the unemployment rate for some time.
6/ US Consumer Credit index for April (previous level – $-11.1 B, forecast – $-7.0 B)
FBS analysts predict that the euro will continue to become stronger relatively to dollar. It is connected, first of all, with possible acceleration of inflation rates. State budget huge deficiency is threat of US financial stability.

Fundamental analysis.
On May, 3rd the dollar has a little won back the falling relatively to euro. EUR/USD has decreased by 1%. Investors, against negative macrostatistics, left highly remunerative currencies, preferring the American dollar and US treasuries. First, US Factory Orders index in April has grown only by 0,7%, instead of expected 1,1%. Secondly, ISM non-manufacturing index in May has reached 44,0 in comparison with 43,7 in April and contrary to expectations of 45,0. This indicator is above 50 throughout eight months on end, specifying economic activity reduction. Thirdly, the number of workplaces in the American companies in April has decreased by 545 thousand, according to report of ADP Employer Services. Fourthly, against the bad statistical data almost all share platforms of the world have decreased.
Today all attention is concentrated on European Central Bank session on which the decision about the key interest rate level will be made. The Bank of England and the Bank of Canada will also make decisions about key interest rates. Performances of the Federal Reserve System chairman Ben Bernanke and ECB chairman Jean-Claude Trichet are planned for today.
Today the following block of macroeconomic statistics is expected:
1/ Retail sales in the Eurozone for April (previous value - -0,6%, forecast - +0,2%).
2/ Jobless Claims in USA for week (previous value – 623H, forecast – 620H).
However, analysts predict that the euro will continue to become stronger relatively to dollar. It is connected, first of all, with possible acceleration of inflation rates. State budget huge deficiency is threat of US financial stability.

Fundamental analysis.
Yesterday, EUR/USD has tested $1,4245 level that is maximum level from the beginning of year.
Highly remunerative currencies, including euro, have been supported by positive news from China. So, the industrial production index of China in May remained above 50 points indicating economic activity increase. Industrial production indexes of the Eurozone and Great Britain in May remained below 50 points but dynamics of their change was positive and has surpassed analysts’ expectations.
Industrial index ISM (USA) has risen to level 42,8 from 40,1 in April. However in the USA there is a problem of a huge public debt which puts pressure upon dollar.
Nevertheless, in view of EUR/USD strong growth which in May has grown by 6,7 % (from the beginning of March euro has risen by 12%!), analysts of the largest European banks (Deutsche Bank, UBS and Barclays Capital) recommend to sell euro. FBS experts don’t exclude that within three months euro can fall to $1,30 level.
Pressure upon euro can amplify on the threshold of ECB session on which the destiny of the key interest rate will dare. Rememeber that ECB does not exclude interest rate decrease below 1%. It will lead to euro exchange rate drop. ECB session will take place on June, 4th.
Today the following block of macroeconomic statistics is expected:
1/ Unemployment rate in the Eurozone for April (previous value – 8,9%, forecast – 9,1%).
2/ Pending Home Sales Index in USA for April.

Received in my inbox this afternoon:

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riskarb

That concept has been working here in US. We just bail them out and take a healthy piece of ownership. Then we start managing the wounded ducks. (to protect the taxpayers position)
The Chinese view USA in same way, soon they will own lots of our stuff, then will have to manage it. Sooner rather than later I am guessing