EUR/USD at Critical Support amid Greek Crisis

* The dollar rose on Thursday. US existing home sales and producer prices rose more than expected. Greece’s financial troubles deepened. The S&P 500 index erased earlier losses and gained 2.73 to 1,208.67. The yen traded modestly lower. Fitch Ratings said Japan’s swelling debt burden may put pressure on the nation’s sovereign AA-rating. The euro declined but held above the important 1.3250-area support. Greece faced strikes and record bond yields. The EU said Greece’s deficit in 2009 was worse than previously forecast and Moody’s Investors Service cut its rating on Greek bonds one notch to A3. The euro’s losses were limited by better-than-expected European PMI numbers. Sterling fell as UK posted its largest budget deficit since WWII. The Australian dollar declined modestly, pressured by weaker-than-expected Australian vehicle sales. The Canadian dollar was boosted by the stronger-than-expected Canadian LEI and the Bank of Canada’s assessment that Canada’s “economic recovery is proceeding somewhat more rapidly.”
* The dollar index rose for a sixth consecutive day, supported by more evidence that the US economy is strengthening and the prospect that Greece will use its EU/IMF package. After breaking its steep uptrend and consolidating gains, the index is now above the 81-handle. We expect a new test of the 82-area resistance. If this is broken, the index will return to the trading channel and continue its ascent. There is support in the 81 area.

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Financial and Economic News and Comments

US & Canada

* US existing home sales rose a more-than-expected 6.8% m/m to a 5.35 million annualized rate in March, the first rise in four months, after a downwardly revised 0.8% m/m decline to a 5.01 million annualized pace in February, according to figures from the National Association of Realtors. March existing home sales climbed 16.1% y/y. Existing home sales increased in all major regions of the country, both in March and compared to last year. The rise in sales was almost all due to an increase in single-family home sales. Sales of condos/coops grew slightly. The median price of an existing home increased to $170,700 in March and advanced 0.4% y/y. Inventories of existing homes advanced 1.5% m/m to 3.58 million available for sale, which represented an 8.0-month supply at the current sales pace, down from February’s 8.5-month supply.

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* US producer prices climbed a slightly more-than-expected 0.7% m/m in March, the fifth increase in six months, after a 0.6% m/m decline in February, data from the Labor Department showed. The producer-price inflation rate accelerated as forecast to 6.0% y/y, a fifth consecutive year-on-year rise and the biggest since September 2008, from February’s 4.4% y/y. The March PPI month-on-month increase was led by a 2.4% m/m advance in food costs, registering a sixth straight monthly rise and the largest since January 1984. Energy prices increased 0.7% m/m in March, the fifth increase in six months. The core PPI, which excludes food and energy, was up as expected 0.1% m/m in March for a second month. The core CPI rate eased slightly as forecast to 0.9% y/y from February’s 1.0% y/y.

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* US initial jobless claims in the week ending April 17 fell 24,000 to a higher-than-expected 456,000 from the previous week’s downwardly revised 480,000, figures from the Labor Department showed. The 4-week moving average increased 2,750 to 460,250. Continuing claims in the week ending April 10 dropped 40,000 to 4,646,000 from the preceding week’s upwardly revised 4,686,000. The 4-week moving average of those continuing claims decreased 5,500 to 4,643,750. The insured unemployment rate for the week ending April 10 declined to 3.6% from the prior week’s upwardly revised 3.7%.
* FHFA US house prices slipped 0.2% m/m sa in February, a third consecutive month-on-month, decline, after a 0.6% m/m decrease in January, according to the Federal Housing Finance Agency’s monthly house price index. February house prices fell 3.4% y/y.
* Canada’s leading economic indicators index, a measure of future economic activity, rose a more-than-expected 1.0% m/m to 234.4 in March, a 10th consecutive monthly rise, after an upwardly revised 0.9% m/m advance to 232.1 in February, LEI data from Statistics Canada showed, pointing to steady Canadian economic growth.

Europe

* The eurozone composite PMI rose to a higher-than-expected 57.3 in April from 55.9 in March, indicating eurozone services and manufacturing industries expanded for a ninth straight month and hit a 32-month high, according to advance April PMI data from Markit Economics. The eurozone manufacturing PMI increased to 57.5 from March’s 56.6, registering a 14th straight monthly gain and the highest since June 2006. The services PMI climbed to 55.5 in April from 54.1 the prior month, showing eurozone services activity expanded for an eighth consecutive month and reached a 30-month high.
* The eurozone consumer sentiment index increased to a higher-than-expected -15.2 in April from a revised -17.3 in March, suggesting euro-area consumer confidence improved to the highest level since May 2008, according to the flash estimate released by the European Commission.
* The German composite PMI advanced to 59.1 in April from 58.7 in March, suggesting Germany’s manufacturing and services sectors grew for a ninth consecutive month and reached a 32-month high, advance April PMI data from Markit Economics showed. The manufacturing PMI grew to 61.3 from March’s 60.2, showing the sharpest manufacturing expansion since records began in April 1996. The services PMI increased to 55.0 in April from 54.9 the prior month, registering a ninth successive expansion in services activity and a 30-month high.
* The seasonally adjusted volume of UK retail sales climbed for a second month in March, increasing a slightly less-than-expected 0.4% m/m, after an upwardly revised 2.5% m/m February gain, according to data from the Office for National Statistics. The retail-sale volume was up 2.2% y/y, following February’s downwardly revised 3.2% y/y increase. Excluding automotive fuel, the seasonally adjusted retail-sale volume grew 0.2% m/m and 4.0% y/y in March.

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Asia-Pacific

* Japan posted a trade surplus of ¥948.9 billion ($10.2 billion) in March, smaller than expected, compared with a ¥5.4 billion surplus in March 2009, figures from the Ministry of Finance showed. Exports jumped for a fourth straight month in March, rising 43.5% y/y, after a 45.3% y/y February gain. Imports increased 20.7% y/y, following February 29.5% y/y advance.

Source: Hans Nilsson

22.04.2010