USD - Dollar Pairs Gains On Positive Consumer Confidence
The greenback advanced versus all of its major counterparts as signs of improving consumer confidence in the United States combined with worries about Germany's banks hurt the European currency after a rally last week. The Conference Board's U.S. consumer confidence index rose in May to 54.9 from an upwardly revised 40.8 in April. The U.S currency strengthened after a media report questioning the health of the German banking system prompted traders to trim back bets against the Dollar.
In trading just before midday in New York, the Dollar was up 0.2% versus the EUR to $1.3893, after touching a session low of $1.3859. The Dollar also rose against the Japanese Yen, trading at 95.10 Yen compared with 94.77 Yen late Friday. But after the release of the U.S. confidence numbers, the EUR also regained some ground against the Dollar, and was at $1.3984 in late New York trade.
The Dollar traded at 5 month lows last week, pushed lower in part by concerns that soaring deficits may threaten the United States' 'AAA' sovereign debt rating. However, the Dollar would likely hold its value even if the U.S. lost its AAA credit rating, because demand for government securities among foreign central banks is unlikely to wane, according to analysts.
Another round of important economic data from U.S is ahead, the Existing Home Sales. The indicator will be published on Wednesday at 14:00 GMT, and is expected to rise from 4.57 million to 4.65 million. A good figure could help the Dollar with retracting its last month's falls against the EUR.
EUR - EUR Hit by Concerns over German banking sector
The European currency depreciated for the first time in 7 days, eroding advances that pushed it last week to the highest level in 4 months. The 16-nation currency fell against the Dollar on speculation last week's gain was too large to sustain, reducing the currency's appeal. The EUR dropped 0.2% to $1.3982 from $1.4017 yesterday. It touched $1.4051 on May 22, the highest level since Jan. 2. Against the Yen, the EUR traded at 132.87, compared with 132.92 yesterday.
The Euro-Zone currency was hurt by plummeting share prices and weak economic data. A media report questioning the health of the German banking system also prompted traders to cash in on the EUR's recent rally. EUR's depreciation versus the Dollar came after the report over Germany's debt situation. Although not new, the report warned that German banks have bad assets of around 200 billion euros ($280 billion).
However, according to technical analysis the EUR may advance further versus the Dollar after the 50-day moving average rose above the 200- day average for the first time since September. The EUR 50-day moving average, currently at $1.3409, surpassed the 200-day moving average at $1.3385 today. Both are good bullish signals analysts say.
JPY - Yen Down Versus the U.S Dollar
The Japanese yen weakened as U.S. economic reports added to evidence the start of a recovery is near, reducing demand for safety. The JPY fell against 15 of the 16 most-active currencies after data showed U.S. consumer confidence climbed this month to the highest since September.
The JPY held declines against the Dollar after a government report showed the world's second-largest economy unexpectedly posted a trade surplus in April. The Yen bought 95.36 versus the dollar from 95.03. The Yen declined to 133.34 per EUR from 132.90 yesterday.
Oil - Crude Rallies on U.S Consumer Confidence
Crude Oil prices rose as much as 0.8%, to $62.35 a barrel, its highest settlement in more than 6 months in New York yesterday as U.S. benchmark stock indexes climbed for the first time in 5 sessions. Crude extended its gains after rising yesterday as a report showing a jump in U.S. consumer confidence triggered an advance in equities. The biggest gain in consumer confidence since 2003 spurred optimism the worst of the recession is over in the world's largest oil-consuming nation.
Oil was falling earlier in the session on expectations that the Organization of Petroleum Exporting Countries (OPEC) won't cut production quotas at a Thursday meeting. OPEC raised its oil production in April for the first month since September, as some member countries took advantage of a recent rally in oil prices, data from the International Energy Agency showed.
OPEC, responsible for 40% of global crude supply, is likely to keep output quotas unchanged for a second time this year as recovering oil prices forestall the need for new cuts, according to analysts.
Article Source - USD Regains Value Against the Majors
Key Overnight Developments
• Dollar Pairs Hit Seven-Month Lows
• Japanese Merchandise Trade Deficit Shrinks by 46%
• Hong Kong Stocks Surge 4.30%
Sterling hit a seven month high against the U.S. Dollar as stocks in Hong Kong surged 4.30%, allowing a reversion to risk-appetite that has continued to hurt the greenback. The Euro lost a bit of traction against it’s American counterpart, allowing scalpers to have swings in price action that were confined to a 50 pip range.
Asia Session Highlights
Japan's Adjusted Merchandise Trade Deficit shrank in the 12 months through the end of April, contracting from -97.1 billion Yen to -52.2 billion Yen as yearly exports fell at a slower pace. In fact, exports to Asia fell at the slowest pace since November, falling by 28.7%. The published figures come just hours after Nippon Steel, Japan's largest producer of the metal, agreed to cut the price of the material that it sells to Toyota Motor by 10%. Such price negotiations could bode well for the country's suffering export sector. Cuts in production costs may be able to spark vehicle sales, which have plummet 28.6% in the 12 months through April.
Minutes of the Bank of Japan's Apr 30 meeting revealed a board that is starting to think of once unfathomable ideas. One member stated that the bank ought to begin discussing plans to exit the program to ease liquidity once the economic recovery occurs. Another member said that monetary policy should have a long-term view. Overall, the temper of the central bank was cautious. For now, no new policies are needed. "A few members said that, although it would take some time for Japan's economy to achieve a full-fledged recovery, it was likely to recover gradually," minutes show. Just after the release, Bank of Japan Governor Masaaki Shirakawa said central banks throughout the world should ensure that their balance sheets stay within a reasonable health level. "In times of crisis, a central bank attempts to provide liquidity aggressively sometimes with taking some credit risk," Shirakawa said in a speech given in Tokyo today. Despite such emergency measures "a central bank should be cautious about the risk of undermining its credibility."
Euro Session: What to Expect
German Consumer Prices will make headlines tomorrow as traders will be using this figure to gauge how the European Central Bank might react at its June 04 meeting. Expectations call for a subdued, yet still positive, outcome that will plummet to a level last seen over ten years ago. The 0.3% expected EU Harmonised number might actually post slightly lower. In fact, import prices in April significantly undershot forecasts by unexpectedly falling by 0.8%. Estimates called for the figure to actually rise by 0.1%. As a result of the lag between the prices that the producers pay and that which is seen on the shelves, the April import price metric may actually materialize via consumer prices in the month of May. Should the yearly inflation figure post to the nearly-flat side, the ECB may be pressured to act accordingly by taking on additional and more aggressive stimulative measures.
French Business Confidence is expected to have risen in May for the second consecutive month after 12 months of seeing such sentiment plummet. Business managers are likely to feel more optimistic about their outlook after Consumer Spending in the European country rose unexpectedly by 0.7% in April despite estimates predicting a decline in sales of 0.3%. Italian Hourly Wages are expected to increase on an annual basis for the first time since December. Such a development would be interesting considering the broader labor situation, which has seen the rate of unemployed in a given quarter drop only once since the summer of 2006.
Written by Luis Gil, DailyFX Research
Article Source - Dollar Plummets to Seven-Month Lows as Asian Equities Rally (Euro Open)
• Is the Yen Truly a Safe Haven And New Zealand Dollar a Source for Yield?
US Dollar Suffers a Sharp Reversal Despite Positive Confidence Report
Up until the open of the US session, it seemed as if the dollar was going to find significant reprieve to last week’s selling. However, when US-based liquidity filled out, the steady appreciation behind the world’s most liquid currency was quickly reversed in a matter of hours. If that wasn’t a clear enough sign that underlying risk trends are still holding their sway over investors’ appetites, the same bias was reflected in the broad pull back in the Japanese yen and the aggressive, 2.6 percent from the S&P 500 Index.
And, though the initial drive against the dollar may have grown out of the market’s efforts to diversify and re-invest into higher yielding assets; there is growing evidence that speculation and sentiment are perhaps playing a larger role in extending the currency’s losses. In turn, we have to determine whether this is grounds for a fundamentally based reversal in the greenbacks favor. One of the most palpable reports of sentiment for dollar interest (and it is accessible to those outside of Forex to boot) are the levels measured through the CFTC’s Commitment of Traders (COT) data. Released each Tuesday, this morning’s report indicated net short interest in the US dollar was at its most extreme since last July – around the same time that EURUSD failed a second time to surmount 1.60 and subsequently fell over 3,600 pips in the following three months. Does this mean that there is an imminent reversal or that the world’s most liquid currency pair will mark an equivalent decline as the one between July and October? In a one word answer: no. Sentiment is prone to extremes; and these acute shifts from equilibrium can last a long time. However, fundamentals may inadvertently be building a case in the dollar’s favor.
It is hard to remember a time when the US dollar was not highly correlated to risk trends; but that was the case just six to eight months ago. The currency’s rivalry with the Japanese yen as a top safe haven was born out panic and the need for liquidity that developed during the worst of the financial crisis in September and October of last year. It is only natural that the greenback should lose some of the premium that was built up during this period; but as long as speculation’s sway over the broader markets moderates, so too will its influence on the dollar. Looking beyond to objective fundamentals, it is looking more and more like the US economy is pulling out of its decline as fast as its strongest economic competitors. This is not to mean that readings for economic activity are positive; but rather, they are closer to signaling growth than the Euro Zone and UK figures for example. For traditional event risk this morning, the most market-moving piece of event risk was the Conference Board’s consumer confidence survey. The May reading did improve for the third consecutive month as expected; but the pickup was far more aggressive than the consensus was calling for. At 54.9 (anything above 50.0 signals net optimism) the gauge was at its highest level since September and logged its largest jump in six years. A breakdown of this report shows that this largely the reflection of expectations (which surged 21.3 points to 72.3), while the ‘Present Situation’ measure printed a tepid 28.9. This reflects a lot of optimism in the government’s ability to carry the economy back into to positive growth, which many feel is ill-advised; but confidence does have a direct correlation to spending nonetheless. In other news both the Richmond and Dallas regional manufacturing activity indexes printed better than expected results for May; while the lagging S&P Case-Shiller home housing index reported a deteriorating pace. We will see whether tomorrows existing home sales data and the quarterly House Price Purchase Index from the Federal Housing Finance Agency reports the same.
A Heavy Round of Data Doesn’t Support a Tempered Pace of Recession for the Euro
While the dollar was no doubt the most active currency for the day, the euro would be the most fundamentally interesting. A mixture of leading and lagging indicators added to the fundamental argument as to whether the ECB should extend its rate cut region and expand its dalliance into quantitative easing or not. Carry the most weight – but ultimately lacking the volatility punch that a first round reading would have garnered – was the final measurements of 1Q German GDP. A superficial look at the headline numbers would have garnered little of additional value beyond confirmation that the economy shrank 3.8 percent in the first three months of the year – the steepest decline since these records began nearly 40 years ago. However, there was real surprise in the fact that capital investment plunged 7.9 percent (much more than the 4.5 percent expected) and exports dropped 9.7 percent (though that was lighter than the consensus projection). It is details like these that will push back the viable recovery time for the economy and thereby tax the central bank’s efforts to taking a more neutral pace with monetary policy.
The other indicators for the day were more timely, but less market-moving. The German GfK Consumer Confidence reading for June held at 2.5 for the second month. From the breakdown, the economic outlook edged closer to a positive reading, while income expectations offset the gain. For the Euro Zone the volatile current account balance for March was still firmly planted in deficit, but moderately better than the previous month. On the other hand, the industrial new orders contracted for an eighth consecutive month. Looking ahead to tomorrow, the discussion on interest rates may intensify thanks to the release of the preliminary German CPI figures for May. However, there is no hard release time given.
Is the Yen Truly a Safe Haven And New Zealand Dollar a Source for Yield?
Risk appetite has been the primary fundamental driver for the markets since April; and though volatility has backed off over the past week, it remains so today. However, the generally accepted risk-philic and risk-free currencies that the market has grown so used to over the past six to twelve months are not guaranteed. When sentiment is at an extreme, the panicked or greedy flock to the same currency; but when conditions settle, the fundamental are read for what they are. Looking at the disputed top and bottom of the risk spectrum; we have seen the support for the Japanese yen and New Zealand dollar in their respective roles shift. Japan recently reported its worst recession on record - even if the Bank of Japan and Cabinet office lifted their outlook for the ‘tempo’ of deterioration for the first time since 2006. How safe can an economy that has struggled for more than a decade with inflation, capital investment and growth really be? On the other side, will economic instability and a tumbling yield undermine the kiwi’s appeal as a high return currency? The government is expected to report its annual budget soon and the economy is considered at risk of another credit rating downgrade.
Written by John Kicklighter, Currency Strategist
Article Source - US Dollar Suffers a Sharp Reversal Despite a Positive Confidence Report
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