FTSE 100: Still pausing in a 4245 to 4510 range.

We are in a classic summer season trading pattern with equity ranges narrowing and volumes’ dipping as the market continues to struggle to find any clear direction. In a shortened week for the US, due to the 4th July holiday, we could see an active start to the week as window dressing leading into the end of the month and the close of Q2 is likely to dominant trading.

Overnight, Asian markets remain subdued with the currency market taking the limelight. This follows the comments from China’s central bank Governor Zhou Xiacochuan relating to the US dollar. Given the hammering the greenback has taken over recent weeks, (due in part to the uncertainty comments on forming a new sovereign currency has triggered) these comments should provide some stability for the dollar. Indeed, the latest survey by Bloomberg by foreign exchange strategist suggests that consensus in the market place is for the US dollar to appreciate between 4% to 17% in the second half of 2009.

This level of appreciation is likely to be achieved as US growth begins to outshine that of both the UK and Europe. The recent weakness of the US dollar is also likely to provide a boost to exports with an export recovery, helping to fuel US growth. In addition, expectations of a change in the reserve currency are far too premature. Even if steps were taken along this route it would take years to implement. As China’s Governor stated reserve policy is aimed at “liquidity, safety and returns”. Currently, only the US dollar holds these attributes and given the significant US treasuries that China holds, a dollar crisis would serve no ones interests.

This week the key data is the US employment release on Thursday. Consensus within the market for non-farm payrolls is-350K versus last month surprise improvement of -345K. The unemployment rate is expected to jump from 9.4% to 9.6%. Generally, the market has already discounted unemployment reaching over 10% in 2009. In other US releases Tuesday, sees the release of Conference board consumer confidence survey and Chicago PMI. Wednesday we have the ISM data and pending home sales, with the June ADP employment report.

In Europe, the ECB meeting on Thursday no change in rates is expected otherwise the week is made up of PMI manufacturing and service data in Europe and the UK. On Wednesday, BOJ Tankan survey is due for release.

Sources: Reuters: Bloomberg: Lawshare: Deutsche Bank (db): Proquote: Financial Times: Wall Street Journal: CLSA: Sharescope: Market News. Capital Economics: CNBC: Wikipedia:

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