While all those data make traders more ferocious every month, this time the bar is moving up. The whole talk of green roots (of recovery) and accompanying leaps in stock indices, bond yields and selected commodities relies heavily on improved early indicators, which are yet about to be confirmed by a “real” data. The industrial ISM has been on the rise since the low of 32,9 pts in December 2008. The British PMIs moved even higher, with the one for services sector moving above 50 points threshold already in May. This march needs to move on if investors are about to stay optimistic. Expectations are for the ISM to be at 44 pts, industrial PMI in UK to be at 46,5 pts and the one in the euro zone at 42,4 pts (all on Wednesday), the services PMIs are expected to move up to 52 pts for the UK and stay unchanged in the euro zone at 44,5 pts (Friday). The US ISM services in moved to the next week. Before that we have Japanese PMI scheduled for tomorrow. The payrolls data are on Thursday and even though a labor market usually reacts with some lag, expectation have been leveled up here too. That is because of the surprisingly good figure last month (a fall in employment of “just” 345k). If June’s figure is back to the 500k range, market will be certainly disappointed. Some indication will be offered here by the ADP report released on Wednesday.

On top of that there are some other data like Conference Board, Chicago PMI (both on Tuesday) and final orders data (Thursday) in the US, Japanese Tankan report (Wednesday) or retail sales in Germany and the whole Eurozone (Wednesday and Friday respectively). Of that list, consumer confidence indicator prepared by the Conference Board had the greatest influence on the market in the last two months. Both times it surprised significantly to the upside and caused major moves in stock indices. In the previous month it actually ended a short correction on the S&P500 which then turned into new highs early June (see the graph below).

The intensive week might end a period of indecisiveness on the EURUSD. The lack of direction is clear even in declaration of strategist in major financial institutions. While some of them see the dollar getting stronger on the US recovery, others see the US currency losing under similar circumstances. How could that happen? The first group looks for increased expectations of higher rates in the US, while the second anticipates good earnings season (started on 7^th July by Alcoa) and a positive correlation between the stock indices and the EURUSD. In the short term it is crucial if the pair completes a double peak formation (violet lines) and continues moving down for another test of a crucial support at 1,3735. Alternatively, making through a resistance at 1,4137 would be a first step to a return to rises after the three wave correction (3-16 June).

Przemysław Kwiecień Chief Economist