EUR/USD Reverses Losses after Hitting 4-Year Low

* The dollar was lower versus the euro but higher against the yen on Monday. US data were mixed; Empire State manufacturing expanded at a slower-than-expected pace while US homebuilders became less pessimistic as home sales rose. The ongoing European sovereign-debt crisis increases demand for dollar liquidity and appreciates the greenback; thus, in turn, pressuring dollar denominated assets. US stocks and commodities fell but pared losses as the dollar came off its high. The S&P 500 reversed a 1.75% decline and closed 1.26 higher to 1,136.94. In overnight trading the euro touched 1.2233, its lowest level since April 2006. Still, the oversold euro may have found some support at this level. The single currency was also supported by the European Central Bank’s statement that the central bank will sterilize its bond purchases. After new UK Prime Minister David Cameron said the government discovered “very bad” spending decisions by the previous administration, the pound plunged but later closed well above today’s low. The Australian and Canadian dollars recovered from earlier losses.

* The dollar index rose for the ninth day out of the last 11 trading days. After hitting the resistance from the April 2009 high, the index pared gains and traded near the upper trading band in late New York trading. There are resistance levels in the 87 and 89.5 areas. Support is in the 84 area from the lower trading band in the rising trading channel.

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Financial and Economic News and Comments

US & Canada

* The Empire State manufacturing index fell to a lower-than-expected 19.11 in May from 31.86 in April, indicating New York manufacturing activity expanded for a 10th straight month but at a slower pace, according to the latest Empire State manufacturing survey released by the Federal Reserve Bank of New York. The new orders index slid to 14.3 in May from 29.5 in April and the shipments index dropped to 11.3 from 32.1; both expanded for an 11th straight month but at slower rates. The employment index increased to 22.4 this month from 20.3 in April, showing employment expanded for a fifth consecutive month to the highest level since May 2004. The prices paid index advanced to 44.7 in May, the highest level since September 2008, from 41.8 in April, but the prices received measure declined to 5.3 from 6.3.

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* Net foreign purchases of long-term US securities jumped more than expected to a record $140.5 billion in March from $47.1 billion in February, while monthly net TIC flows increased to $10.5 billion from February’s upwardly revised $9.7 billion, according to figures from the Treasury Department.

* The National Association of Home Builders/Wells Fargo housing market index increased to a higher-thanexpected 22 in May from 19 in April, suggesting US homebuilders turned less pessimistic this month with their confidence at the highest level since August 2007, according to an NAHB report. A reading below 50 means most respondents view conditions as poor. The measure of current single-family home sales advanced to 23 in May, the highest level since July 2007, from 20 in April. The gauge of buyer traffic improved to 16, the best reading September 2009, from April’s 13. The measure of sales expectations for the next six months increased to 28, the highest level since November 2009, from 25.

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Europe

* UK house prices were up 0.7% m/m in May, a fifth consecutive month-on-month increase, to an average of £237,134 ($341,691), the highest since June 2008, after a 2.6% m/m advance in April, Rightmove Plc reported. May house prices rose 4.3% y/y, an eighth straight year-on-year rise, following a 6.0% y/y April gain. London’s house prices slipped 0.4% m/m to an average of £420,203 in May, the first month-on-month decline this year; however, they rose 5.7% y/y.

* Total order books in the UK manufacturing sector showed a resulting balance of -18% in May, a big improvement on April’s -36%, according to the Confederation of British Industry’s latest monthly industrial trends survey. Firms expect a rise in production in the next three months, with a balance of +17% in May compared with +14% the prior month.

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Asia-Pacific

* Japanese private-sector machinery orders, excluding volatile ones, climbed a less-than-expected 5.4% m/m to ¥732.9 billion ($7.9 billion) in March, the first increase in three months, after a revised 3.8% m/m decline in February, data from the Cabinet Office showed. March core machinery orders grew 1.2% y/y, the first year-onyear gain since June 2008, following a 7.1% y/y February decrease.

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* Japan’s domestic corporate goods prices rose 0.4% m/m in April, a fifth consecutive month-on-month rise, after a 0.2% m/m increase in March, according to the Bank of Japan corporate goods price index. April CGPI slipped 0.2% y/y, a 16th straight year-on-year decline but slowing from a 1.3% y/y March decrease.

Source: Hans Nilsson

17.05.2010