EUR/USD Drops on Greek Skepticism

* In NY trading Monday, the dollar was lower versus the commodity currencies but higher against the euro and yen. The EMU and IMF agreed to a ?110 billion rescue package for Greece to prevent a Greek default in return for Greece’s pledge to adopt austerity measures. Strong economic data reinforced arguments that the global economy is steadily recovering. Manufacturing industries expanded to the highest level since June 2004 in the US and grew the most since June 2006 in the euro area. US personal income and spending continued to rise. The S&P 500 gained 15.57 to 1,202.26. Testing the important 94-area resistance, the USD/JPY traded near the highest level since August 2009. Sterling was lower and pressured by UK election uncertainty. The Australian and Canadian dollars were boosted by the strong global manufacturing outlook. The aussie rose ahead of the RBA interest-rate decision meeting despite higher mining taxes and China’s 50-basis-point reserve requirement increase.
* The EUR/USD fell on skepticism the Greek government may not to able to follow through the austerity measures and on concerns whether all EMU nations will approve the aid plan after their discussions in the national parliaments. After breaking its sharp downtrend, the EUR/USD is trading in a downward trading channel. Supports are in the 1.31 area from the lower trading band as well as in the mid 1.29 area. There is resistance in the 1.33 area. We expect the pair to drift lower.

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Financial and Economic News and Comments

US & Canada

* US personal income grew as forecast 0.3% m/m in March, an eighth straight monthly gain, after upwardly revised increases of 0.1% m/m in February and 0.4% m/m in January, data from the Commerce Department showed. Personal spending rose as expected 0.6% m/m, a sixth consecutive monthly rise, after February’s upwardly revised 0.5% m/m advance and January’s downwardly revised 0.3% m/m increase. Personal income rose 3.0% y/y in March; personal spending rose 4.5% y/y. Disposable personal income was up 0.3% m/m in March after unchanged in February, led by wages/salaries and unemployment compensation. Private-sector wages and salaries rose at a 3.1% annual rate in Q1 2010, the fastest rise in more than two years. Personal saving as a percentage of disposable personal income declined to 2.7% in March from 3.0% in February. The personal consumption expenditure deflator climbed 2.0% y/y in March after a 1.8% y/y advance the prior month. The core PCE deflator, which excludes food and energy, increased 0.1% m/m in March and rose 1.3% y/y.

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* The ISM US manufacturing index climbed to a higher-than-anticipated 60.4 in April from 59.6 in March, indicating US manufacturing expanded above the 50 growth level for a ninth consecutive month to the highest level since June 2004, according to data from the Institute for Supply Management. Most of the index’ key components increased in April. The new orders index rose to 65.7 from 61.5, indicating new orders expanded for a 10th successive month in April. Manufacturing production expanded for an 11th straight month, with the production index climbing to 66.9 in April from 61.1 in March. The employment index advanced to 58.5 in April from 55.1 the prior month, showing manufacturing employment grew for a fifth consecutive month. The prices paid index rose to 78.0 in April, a 10th consecutive monthly rise above the 50 reading, from 75.0 in March, suggesting price pressures grew at a faster pace.

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* US construction spending unexpectedly grew 0.2% m/m to a seasonally adjusted $847.3 billion annual rate in March, the first increase in five months, after a downwardly revised 2.1% m/m decline to an $845.5 billion annual pace in February, according to data from the Commerce Department. March construction spending fell 12.3% y/y.

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Europe

* The eurozone manufacturing PMI increased to 57.6 in April (vs. preliminarily reported 57.5) from 56.6 in March, suggesting euro-area manufacturing industries expanded to the highest level since June 2006, according to final April PMI data from Markit Economics.
* The German manufacturing PMI rose to 61.5 in April (vs. preliminarily reported 61.3) from 60.2 in March, showing the sharpest manufacturing expansion in Germany since records began in April 1996, final April PMI data from Markit Economics showed. Manufacturing employment registered its first expansion since September 2008, while factory gate price inflation reached a 19-month high.
* The SVME Swiss PMI unexpectedly advanced to 65.9 in April from 65.5 in March, suggesting Switzerland’s manufacturing expanded above the 50 growth threshold for an eighth straight month and reached its third-highest level ever, according to a survey from the Swiss Association of Purchasing and Materials Management and Credit Suisse.

Asia-Pacific

* The Australian Industry Group-PricewaterhouseCoopers Australian performance of manufacturing index rose to 59.8 in April from 50.5 in March, showing Australia’s manufacturing expanded at the fastest pace since May 2002, the AiG and PwC reported.
* Australia’s house prices grew 4.8% q/q in Q1 2010 after a 5.2% q/q advance in Q4 2009, the Australian Bureau of Statistics said. House prices jumped 20.0% y/y in Q1, the largest gain since March 2003.

Source: Hans Nilsson

03.05.2010