EUR/USD Breaks Crucial Support

* The dollar surged against the euro but fell versus the yen on Wednesday as European debt fears deepened. The ADP US private-sector employment report showed US employers added 32K jobs in April, the most since January 2008. Growth in US service industries held at the highest level since May 2006. The S&P 500 declined 7.73 to 1,165.87. US interest rates dropped and commodity prices fell. The yen rose as investors exited carry trades. Sterling’s losses were limited by the latest UK election polls indicating a victory for the Conservative Party. The Australian and Canadian dollars fell as investors sold growth related assets and commodities; both currencies broke their short-term uptrends.
* The EUR/USD plunged through the important 1.29-area support to a 14-month low. The pair has been pressured by worsening unrest in Greece and increasing contagion risk in Southern Europe. European Central Bank council member Axel Weber said there is a threat of “grave contagion effects.” Moody’s Investors Service warned it may cut Portugal’s debt rating. Three people were killed in an Athens fire set during protests against Greek austerity measures. Despite extremely oversold, the EUR/USD is likely to fall further. The 1.29-1.30 area is turning to be strong resistance. There is no significant support until the 1.25 area.

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Financial and Economic News and Comments

US & Canada

* US private-sector payrolls rose 32,000 in April, a third consecutive monthly gain and the largest since January 2008, after an upwardly revised 19,000 increase (vs. previously reported -23,000) in March, according to estimates by Automatic Data Processing, Inc. and Macroeconomic Advisers, LLC. The May 7 employment report from the Labor Department will possibly show overall job gains approximately 190,000 for April, with the unemployment rate unchanged at 9.7% for a fourth consecutive month.

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* The ISM US non-manufacturing index held at 55.4 for a second month in April, indicating US service industries expanded for a fourth consecutive month and remained at the highest level since May 2006, data from the Institute for Supply Management showed. The business activity index increased to 60.3 from March’s 60.0, reflecting business activity growth for a fifth successive month. The new orders index declined to 58.2 in April from 62.3 the prior month, suggesting new orders expanded for an eighth straight month but at a slower pace. The employment index slipped to 49.5 from 49.8, indicating non-manufacturing employment contracted in April for a 28th straight month. Prices paid by non-manufacturing organizations for purchased materials and services grew at a faster pace in April, with the prices index rising to 64.7 from March’s 62.9.

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Europe

* The eurozone GDP will rise 0.9% in 2010 (vs. previously projected 0.7%) and expand 1.5% in 2011 after contracting 4.1% in 2009, the European Commission said in its semi-annual forecasts published today.
* Eurozone retail sales were unchanged m/m as forecast in March after two consecutive monthly declines of 0.2% m/m in February and 0.3% m/m in January, data from Eurostat showed. March retail sales slipped 0.1% y/y, a third straight year-on-year decline, following a revised 0.2% y/y February decrease.

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* The eurozone composite PMI rose to an unrevised 57.3 in April from 55.9 in March, indicating eurozone manufacturing and service industries expanded for a ninth straight month and reached the highest level since August 2007, according to final April PMI data from Markit Economics. The services PMI increased to 55.6 (vs. preliminarily reported 55.5) in April from 54.1 the prior month, showing the eurozone service sector expanded for an eighth consecutive month and at the fastest rate since October 2007.
* The German composite PMI advanced to 59.3 (vs. preliminarily reported 59.1) in April from 58.7 in March, suggesting Germany’s manufacturing and service sectors grew for a ninth consecutive month and at the highest level since January 2007, final April PMI data from Markit Economics showed. The services PMI increased to 55.2 (vs. preliminarily reported 55.0) in April from 54.9 the prior month, registering a ninth successive expansion in the German service sector and the fastest rate since August 2007.
* The CIPS/Markit construction PMI rose to a higher-than-expected 58.2 in April from 53.1 in March, showing the UK construction sector expanded for a second consecutive month and at the fastest pace since September 2007, according to data from Markit Economics and the Chartered Institute of Purchasing and Supply.
* UK shop price inflation accelerated to 2.0% y/y in April from 1.2% y/y in March, the British Retail Consortium reported. Food inflation rose to 2.0% y/y in April from 1.2% y/y in March and non-food inflation rose to 2.0% y/y from March’s 1.3% y/y.

Asia-Pacific

* The Australian Industry Group/Commonwealth Bank performance of services index climbed to 52.3 in April from an upwardly revised 48.9 in March, indicating Australia’s service sector expanded for the first time in five months, according to a report by the AiG and Commonwealth Bank of Australia. The new orders index rose to 52.7 from March’s 47.2, suggesting new orders expanded in April following four consecutive monthly declines. The employment index advanced to 52.3 in April from 48.4 in March, showing employment expanded following recent softness.

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* Australia’s seasonally adjusted building approvals rose a more-than-anticipated 15.3% m/m to 16,383 in March, the first rise in three months and the fastest since 2002, after a revised 2.7% m/m decline in February, figures from the Australian Bureau of Statistics showed. Building approvals jumped 51.6% y/y, an eighth straight year-on-year gain, following February’s upwardly revised 36.3% y/y advance. Approvals to build private houses were up 0.5% m/m to 9,779 in March and up 29.7% y/y. Approvals for apartments and renovations surged 59.

Source: Hans Nilsson

05.05.2010