The U.S. Dollar Index remains in a neutral trend

The U.S. Dollar Index (USDIDX) remains in a neutral trend. In the previous reviews, we noted that it did not react to the positive U.S. macroeconomic data, now the index does not respond to the weak data either. New home sales in March were down by 14.5% compared to February and reached the lowest level since July 2013 amounting to 384 thousand. Compared to March 2013, the average cost of an American home (per single-family) grew by 12.6% and amounted to $290 000. There were 193 000 homes for sale in the U.S. in the beginning of April 2014. That is the highest figure since November 2010. We believe that the price increase with a decrease in demand is a negative factor for the U.S. economy. It shows production price increase and may be a harbinger of stagflation. But it is too early to talk about it yet. Even though the PMI manufacturing index for April dropped yesterday, it still remains significantly above 50 points. It was worse than the preliminary forecasts and dropped to 55.4 points from 55.5 points in March. Today at 14-30 CET, we will see the basic macroeconomic data from the United States for this week such as orders for durable goods in March. At the same time, there will be the U.S. labor market announced this week. In our opinion, the preliminary forecasts are moderately negative and the (USDIDX) is declining this morning.

The Euro (EURUSD) respectively strengthens (increases) vs. the U.S. Dollar. The EZ PMI manufacturing index for April came out yesterday. Unlike the United States, its growth exceeded the forecasts. In this regard, PMI rose to 3-years maximum. Today at 10:00 CET, there are several IFO indexes of business activity, coming out in Germany. They are expected to be negative due to the worsening of the situation in Ukraine, which borders with the EU. Investors will be focused today on the ECB President Mario Draghi’s statement.

The British Pound (GBPUSD) decreased after the BOE minutes report. It noted a more rapid recovery compared to the predictions. According to some economists of the Bank of England, it may delay the discount rate increase up from the current level of 0.5%. Inflation has fallen in March, to its lowest level since October 2009 and amounted to 1.6%. Unemployment fell in February to 6.9% and the average wage increased by 1.7% for the first time since April 2010. Now the Bank of England expects the GDP growth of 3.4% this year, while it was only 1.7% in 2013.

Tomorrow night at 1-30 CET, we will see the important economic inflation indicators of for March from Japan. In principle, the preliminary forecasts are in favor of the JPY strengthening (decline on the USDJPY chart), but the exact market reaction is difficult to be predicred. Recall that the Bank of Japan was going to stop stimulating the economy when inflation in the whole country reaches 2%. It is expected that it can reach a maximum of five years in March and make up 1.4%. It is worth to pay attention to the core CPI in Tokyo for April. It often precedes the inflation data across the country, which will be released in May. According to forecasts, this Tokyo index may increase by 2.8% year on year tomorrow, the highest since 1992. It gets released for the first time after the sales tax increase in Japan.

The Coffee updated its 2-year high yesterday due to the drought in Brazil. According to the forecast of the Swiss company (Volcafe), the harvest in Brazil will be only 45.5 million bags (60 kg) or 2.73 million tons in the season 2014/2015. In this regard, the world market may form a deficit of 11 million bags for the first time in the last five years. We do not exclude a technical correction after a sharp rise in the world coffee prices (almost doubled time higher than in the past six months). The world coffee supplies are about 9.7 million tons. They can partially compensate the harvest reduced this year. The weather in Brazil can still improve. Note that the increase in coffee prices came out as a surprise to market participants. According to the U.S. Commission on commodity futures trading, the aggregate (net-long position) was formed on the market only in February, and before that, there was a net short position observed 18 for consecutive months.