- Mixed, jobless claims fall, durable goods rise, housing data weak, bond yields at six-month high
- Lower, pressured by heavy Japanese investor outflows in search of yield
- Higher, EU economic sentiment improves and German unemployment rate falls
- Lower, CBI retail sales fall more than expected, BOE's Blanchflower warns recovery may be delayed
- AUD & CAD higher, crude rises above $64 a barrel , risk sentiment improves
Overview
USD rallied sharply versus the JPY, traded weaker against Europe and the commodity currencies. The USD is supported versus JPY by a rise in US bond yields to a six-month high and Moody's affirmation of US AAA bond rating. The Moody's affirmation of US debt rating reduces fear that investor demand for US bond auctions will decline. JPY was also pressured by report of the investor outflows as Japanese investors seek higher yield abroad, encouraged by rising optimism about the global economy. The rise in US bond yields reflects improving economic optimism and concern about increased supply as US budget deficit grows. The USD was pressured versus EUR by optimism about the global recovery and unwind of safe haven positions. EUR was supported by report of improving EU economic sentiment and falling unemployment in Germany. CHF edged higher supported by report of widening trade surplus as exports rise 8.3% in April. GBP drifted lower pressured by report of weaker than expected CBI retail sales and comments from BOE's Blanchflower that UK recovery will likely be delayed. The commodity currencies firmed supported by rising risk appetite and higher crude prices as OPEC keeps production levels unchanged. Crude oil prices traded above $64 a barrel supported by report of a 5.4 mln barrel drop in crude inventories. Better than expected rise in US April durable goods orders and a drop in jobless claims added to speculation that the worst of the US economy has passed. Existing home sales data came in weaker than expected and the USD pared losses as equity markets decline and uncertainty about US recovery resurfaces.
Today's US data:
US April goods orders rise 1.9%, the trade was looking for a 0.8% decline. Jobless claims fall 13K to 623K the trade was looking for a decline to 620K. Continuing claims rise to another record high. This report suggests that the US economy and labor market is stabilizing. April new home sales rise just 0.3% compared to 3% decline in March, the trade was looking for a 1% rise. Equities reversed early gains in reaction to the disappointing new home sales report. The report suggests that the US housing market remains weak.
Upcoming USD data:
On May 29th, Q1 GDP will be released expected at -5.6% compared to -6.1% last quarter. Chicago PMI and Michigan consumer sentiment will also be released on May 29th. Chicago PMI is expected to rise to 42 from 40.1 last month and the University of Michigan sentiment expected at 67.9 compared to 65.1 last month.
JPY
JPY traded sharply lower pressured by rising US bond yields, improving risk sentiment, continued geopolitical tensions with North Korea and heavy selling in cross trade. JPY was pressured by report that Japanese investors have increased their demand for overseas assets. According to Japan's finance minister Japanese investors increased purchases of foreign bonds last week to the highest level in a month. MOF flows data show a sharp increase in Japanese demand for foreign stocks and bonds. MOF flows data for week ending May 23rd shows that Japanese investors were net buyers of ¥76.8 bln in foreign stocks and ¥641.1 bln of foreign bonds last week. The increase in Japanese investor demand for foreign assets is fueled by improving risk sentiment and growing confidence that the worst for the global economy is behind. JPY was also pressured by selling in cross trade to the EUR with EUR supported by report of improving economic sentiment and employment. AUD/JPY traded 2% higher as Japanese investors seek higher yields in Australia. What is interesting about today's JPY decline is that recent JPY rally was supported by the same optimism about the recovery and speculation that investors would reduce safe haven holdings of USD. Today, JPY was pressured by improving outlook for the global economy. Analysts at Nomura forecast that the JPY may rally to 87.00 supported by the global recovery. JPY weakened despite report of a 0.6% rise in April retail sales. The rise in April retail sales suggests that the Japanese economy is stabilizing. The trade will be monitoring key resistance at the 200 day moving average at 97.30 for confirmation the reversal of recent JPY rally will continue. The trade will also be looking to see whether improving outlook for the global economy will bring back demand for JPY carry trades.
On May 29th, April CPI will be released expected at -0.1% compared to 0.3% last month. April unemployment, industrial output, housing starts and construction orders will also be released on May 29th. April unemployment is expected to rise to 5% from 4.8%, industrial output is expected to rise to 2.1% from 1.6% last month, housing starts are expected to fall to 1.1% from 2.5% last month and construction orders are expected to improve to -34 from -37.8 last month.
Key technical levels to watch in USD/JPY include 95.49 the May 28th low with resistance at 97.30 for 200 day moving average and 97.85 the May 12th high.
EUR
EUR traded higher supported by improving EU and German economic data and heavy buying in cross trade to the JPY. EU May consumer sentiment improved to -30 from -31 last month and economic sentiment improved to 69 from 67.2 last month. May business climate declined to 3 from 3.33 last month. German unemployment unexpectedly declined to 8.2% from 8.3% last month. The German economy only lost 1K jobs last month, the trade expected report of a loss of as many as 60K. Today EU economic data suggests that the EU economy is stabilizing. ECB's Nowonty says that the economy is bottoming but will remain weak. Today's EU and German economic data clouds the outlook for ECB policy and whether the ECB will set a floor for interest rates at 1%. ECB's Constancio said the ECB has not decided on whether the central bank will cut rates below 1%.EUR gained almost 2% versus the JPY with the EUR/JPY cross trading above 134.50. The cross gains to the JPY are attributed to Japanese demand for foreign assets sparked by improving outlook for the global economy. Rising US bond yields and yesterdays report that the ECB may be considering expanding quantitative ease limits EUR gains versus the USD. Reuters reported yesterday that the ECB may increase its asset purchases and buy mortgage-backed bonds or public-sector bonds loans. More aggressive easing by the ECB could be seen as a mild negative for the EUR.
On May 29th EU April money supply and unemployment will be released. The money supply is expected to rise by 6% compared to 5.6% last month and April unemployment is expected at 9% compared to 8.9% last month. In addition, EU April HICP will be released on May 29th expected at 0.2% compared to 0.6% last month.
The technical outlook for the EUR is turning mixed as EUR fails to hold above 1.4000. Expect EUR support at 1.3793 the May 28th low with resistance at 1.4023 the May 26th high and 1.4060 the January 2nd high .
GBP
GBP traded lower pressured by report of weaker than expected UK retail sales, a warning from the BOE's Blanchflower about UK economic outlook and selling in cross trade to the EUR. May CBI retail sales fell to -17 from +3 last month, the trade was looking for a reading of -10. Blanchflower says he does not see an improvement in UK growth this year or next year and warns that UK recovery may be delayed. He went on to say that he cannot assume that the financial crisis has passed. The decline in UK CBI sales and Blanchflower comments dent in recent optimism that the UK recession was nearing an end. Improving EU economic sentiment and declining German unemployment sparked a recovery in the EUR/GBP cross. EUR/GBP traded sharply lower Wednesday with GBP supported by speculation that the UK economy will recover faster than EU because the Bank of England has taken more aggressive action than the ECB to boost growth. A Bloomberg report which suggests that the Fed may be considering expanding its asset purchases had limited impact on today's trade. The report suggests that the Fed may continue to expand its balance sheet until the Fed is convinced that the economic recovery has taken hold.
The technical outlook for GBP has improved as GBP trades above psychological resistance at 1.6000. Expect near-term support at 1.5775 the May 26th low with resistance at 1.6085 the May 27th high.
CAD
CAD traded higher consolidating near eight-month highs supported by optimism about the global recovery and rising energy prices. Comments from Treasury Secretary Geithner that the US is entering the early stages of recovery and a spike in US bond yields to a six-month high, contributed to the latest improvement in optimism that the worst of the global recession has past. The price of crude traded above of $64 a barrel as OPEC elects to hold production unchanged and crude inventories dropped sharply last week. CAD was also supported by firmer US equity market trade, sparked by reports of declining US jobless claims and better than expected rise in durable goods. There were no major Canadian economic reports released today. The trade ignored a political row brewing over Canada's rising budget deficit. Canada's Finance Minister Flaherty announced earlier in the week that Canada's budget deficit would rise to C$50 bln. Canada's opposition party is pressing PM Harper to fire Flaherty over the rising budget deficit. PM Harper defends the budget and says the deficits are affordable and modest compared with other nations. Harper noted that the Canadian government is borrowing at low interest rates and that the budget is designed to boost growth. Focus turns to Friday's release of Canada's current account. The Q1 current account is expected to fall to $C-10.5 bln from $C-7.49bln last quarter. CAD direction will hinge on the direction of energy prices and speculation about the global economy.
This week's Canadian economic calendar is light with the May 29th release of Q1 current account the only major report scheduled.
The technical outlook for CAD is positive but the rally is losing steam price action consolidating around 1.1100. Look for near-term support at 1.0995 the October 8th low with resistance at 1.1355 the May 26th high.
AUD
AUD traded higher supported by optimism that the worst of the global economy has passed and by sharp gains in cross trade to JPY. AUD rallied despite report of a bigger than expected drop in Australia's Q1 CAPEX spending. Q1 CAPEX spending falls 8.9%, a 7% decline was expected. AUD traded at a new high for 2009 Wednesday supported by rising crude prices and improving risk sentiment. AUD gains in cross trade are attributed to Japanese demand for higher yields as the global economy stabilizes. Japanese investors were buying the Toshin auction. As noted above, Japanese investors have increased purchase a foreign stocks and bonds. Australian offers attractive yields and improvement in risk sentiment which encourages Japanese demand for Australian yields. RBA meet next Tuesday and are expected to hold rates steady at 3%. With short-term yields near zero in Japan, the return of confidence in the global economy encourages investors to purchase riskier assets. Steady RBA rate decision could lend additional support to the AUD. The trade looks for a near-term target of 8000 for the AUD.
On May 29th, April private sector credit will be released expected at 0.3% compared to 0.1% last month.
The technical outlook for the AUD remains positive with this weeks rally above 7800. Look for AUD support at 7705 the May 26th low with resistance at 7954 the 200 day moving average.
|
