EUR/USD Breaks Long-term Downtrend

* The dollar fell versus other key currencies on Monday following more signs of a global economic recovery. The Chinese PMI indicated China’s manufacturing expansion for first time in nine months, while US pending home sales and construction spending exceeded expectations. The yen gained against the dollar but declined versus most other major currencies. Japanese trading is closed until Thursday due to Golden Week holidays. Risky assets prices rose on increased risk appetite. The Dow rose 214 points to 8,427 and the S&P 500 closed above 900 for the first time since early-January. Sterling advanced to the 1.50 resistance in thin trading as the UK was closed for a bank holiday. The commodity currencies rose on better global economic prospects. The AUD/USD traded above the 0.73 area, while the USD/CAD traded below the 1.18-area support.

* The EUR/USD rose on better risk sentiment despite the European Commission cutting its eurozone growth forecast and European Central Bank Governing Council member Axel Weber’s comment that Germany may not see positive economic growth until H2 2010. The EUR/USD short-term trend is positive. Resistances exist in the 1.35 and 1.37 areas. The long-term outlook has also turned bullish. The EUR/USD made a double bottom over the last 6 months and broke its long-term downtrend today. Support exists in the 1.30 area.

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Financial and Economic News and Comments

US & Canada

* US pending home sales rose 3.2% m/m in March, exceeding expectations, with the NAR US pending home sales index rising to 84.6, following a downwardly revised 2.0% m/m increase to 82.0 in February, according to data from the National Association of Realtors. March pending home sales rose 3.2% y/y.

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* US construction spending in March unexpectedly increased 0.3% m/m, the first gain in six months, to a seasonally adjusted annual rate of $969.7 billion, following February’s downwardly revised 1.0% m/m decline, data from the Commerce Department showed. March construction spending fell 10.9% y/y.

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Europe

* The eurozone manufacturing PMI for April was revised higher to 36.8 from a preliminary 36.7, following 33.9 in March, and the German manufacturing PMI for April was upwardly revised to 35.4 from a preliminary 35.0, following 32.4 in March, indicating manufacturing contractions in the eurozone and Germany eased in April, Markit Economics reported.

* Eurozone investor confidence improved for a second straight month in May, with the Sentix eurozone investor confidence index increasing to -34.3 from April’s -35.3, Sentix reported. The expectation index rose to -5.25 from -12.50, while the current situation index fell to -59.00 from -55.25.

* The European Commission cut its eurozone growth forecast, predicting the growth rate to contract 4.0% in 2009 and 0.1% in 2010, while Germany’s GDP is forecast to contract 5.4% this year and 0.3% next year. The eurozone budget deficit will swell to 6.5% of output in 2010, when unemployment will climb to 11.5%. Eurozone inflation will slow to 0.4% in 2009 before accelerating to 1.2% in 2010, the EC said.

* Germany’s retail sales unexpectedly declined 1.0% m/m in March, as rising unemployment prompted consumers to reduce spending, following an upward revision to 0.0% m/m in February, the Federal Statistical Office said. Retail sales fell a more-than-expected 1.5% y/y, following February’s downwardly revised 6.2% y/y decrease.

* The SVME Swiss PMI increased more than expected to 34.7 in April from 32.6 in March, indicating Switzerland’s manufacturing contracted at a slower rate for the first time in a year, according to data from the Swiss Association of Purchasing and Materials Management.

Asia-Pacific

* Australia’s house prices declined 2.2% q/q in Q1 2009 after a downwardly revised 1.2% q/q slide in Q4 2008, the Australian Bureau of Statistics reported. House prices dropped 6.7% y/y, the largest decline since records began in 1986, following Q4’s downwardly revised 3.9% y/y decrease.

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* The CLSA Chinese PMI rebounded to a seasonally adjusted 50.1 in April from 44.8 in March, indicating China’s manufacturing expanded for the first time in nine months as the government’s 4 trillion yuan ($586 billion) stimulus plan spurred investment, CLSA Asia- Pacific Markets reported.

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Source: Hans Nilsson

04.05.2009