Dollar Falls to Support on Surging Consumer Sentiment

* After gaining overnight on reports of North Korea’s nuclear test and missile launches, the dollar pared its gains on Tuesday on the Conference Board May report that US consumer expectations for economic activity over the next six months jumped to the highest level since December 2007. The improvement in the consumer expectations component is significant as it is the most leading indicator in the consumer confidence report. Manufacturing activity in the central Atlantic region also rebounded sharply offsetting continued weakness in the housing sector. The dollar index is testing the important 80-area support. The S&P 500 rose 23.33 points to 910.33. Improving risk appetite supported the riskier currencies while weakening the yen. Sterling rose modestly. The Australian and Canadian dollars reversed earlier losses on the improving risk appetite and global economic outlook.

* After declining overnight on geopolitical and German banking worries, the EUR/USD recovered most of its losses on improving risk sentiment. The pair is overbought, having not broken the important 1.40 resistance. If this resistance is penetrated, the EUR/USD may rally to 1.45.



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Financial and Economic News and Comments

US & Canada

* Home prices in 20 US cities fell a more-than-expected 18.7% y/y in March, matching February’s year-on-year fall, according to the S&P/Case-Shiller composite-20 house price index. The 20-city index in March declined 2.2% m/m. Home prices in 10 US cities decreased 18.6% y/y and 2.1% m/m in March, the S&P/Case-Shiller composite-10 house price index showed. For Q1 2009, the S&P/Case-Shiller US national home price index dropped 19.1% y/y, the largest quarterly drop for the index’s 21-year history.

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* The Conference Board US consumer sentiment index rose more than expected to 54.9 in May from an upwardly revised 40.8 in April, indicating US consumer confidence jumped to its highest level since September 2008, according to data from the Conference Board. The present situation index increased to 28.9 in May from 25.5 in April. Consumer expectations for economic activity over the next six months improved sharply to 72.3, the highest level since December 2007, from April’s 51.0.

Europe

* Eurozone industrial new orders fell for an eighth consecutive month in March, unexpectedly declining 0.8% m/m, after remaining unchanged m/m in February, according to data from Eurostat. Industrial new orders fell a less-than-expected 26.9% y/y, following February’s upwardly revised 34.2% y/y drop.

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* Germany’s GDP contracted a seasonally adjusted 3.8% q/q in Q1 2009, the steepest decline since quarterly records began in 1970, according to final Q1 GDP data from the Federal Statistical Office. The Q1 GDP shrank 6.9% y/y wda and 6.7% y/y nsa. A 9.7% q/q drop in exports and a 7.9% q/q decline in capital investment led the Q1 GDP contraction. Imports fell 5.4% q/q. Consumer spending increased 0.5% q/q even as household disposable incomes declined 0.9% q/q.

* The GfK German sentiment index was unchanged at 2.5 in June, indicating Germany’s consumer confidence held steady for a fourth month, GfK AG reported. The economic expectations index rose to -28.3 from -31.2, while the income expectations index declined to -9.3 from -8.0. Consumer propensity to buy increased to 12.5 from 12.4.

* Switzerland’s employment level unexpectedly increased 0.8% y/y to 3.957 million in Q1 2009 after a 1.6% y/y rise to 3.963 million in Q4 2008, data from the Swiss Federal Statistical Office showed.

Asia-Pacific

* Japan’s corporate service price fell 2.4% y/y in April, according to preliminary April data from the Bank of Japan, following a 2.1% y/y decline in March.

* New Zealand’s 2-year inflation expectations declined slightly to 2.2%, compared with the previous reading of 2.3%, according to the latest Reserve Bank of New Zealand survey of expectations.

FX Strategy Update



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Source: Hans Nilsson

26.05.2009