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.