EUR/USD Will Rise on Stock Market Rally

* The dollar traded mixed on Tuesday, higher against the euro and yen but lower versus other major currencies. Surging gasoline prices spurred gains in June US retail sales and producer prices, while businesses reduced inventories. The S&P 500 rose 4.79 points to 905.84 following strong earnings from Goldman Sachs. Rising global stocks pressured the yen. Better-than-expected UK house price balance and retail sales supported the pound. The Australian and Canadian dollars advanced as commodity prices rose.

* The EUR/USD fell on unexpected declines in German and eurozone ZEW investor confidences and weakerthan- expected eurozone industrial production. The pair is trading in a sideways pattern as the US stock market consolidates gains. There is a small symmetrical triangle formation; resolution to this pattern is usually to the upside. The stock market has not broken the neckline from the head-and-shoulder formation. We believe stocks are likely to rally again. A penetration of S&P 500’s 930-area resistance will be the start of a new stock market advance. This will reduce risk aversion and likely support the EUR/USD despite that the EMU is lagging the US in the business cycle.

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Financial and Economic News and Comments

US & Canada

* US producer prices climbed a more-than-expected 1.8% m/m in June after increasing 0.2% m/m in May, according to PPI data from the Labor Department. The PPI fell a less-than-expected 4.6% y/y, following May’s record 5.0% y/y drop. The June month-on-month PPI increase was mostly due to a 6.6% m/m rise in energy. Food prices were up 1.1% m/m. The core PPI, which excludes food and energy, rose a more-thanexpected 0.5% m/m in June, the largest rise since October 2008, and climbed 3.3% y/y.

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* US retail sales rose a more-than-expected 0.6% m/m in June, led by purchases of gasoline and automobiles, after a 0.5% m/m gain in May, data from the Commerce Department showed. Retail sales excluding autos were up a less-than-anticipated 0.3% m/m, following May’s downwardly revised 0.4% m/m increase. June retail sales fell 7.8% y/y and fell 7.1% y/y excluding autos.

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* US business inventories fell for a ninth straight month in May, falling a more-than-expected 1.0% m/m to a seasonally adjusted $1.368 trillion, after April’s downwardly revised 1.3% m/m decline, according to data from the Commerce Department. Business sales declined 0.1% m/m in May to $966.1 billion, following April’s 0.3% m/m slide. The inventory-to-sales ratio declined to 1.42 in May from 1.43 in April, still higher than May 2008’s 1.27. Inventories fell 8.0% y/y in May; sales dropped 17.8% y/y.

Europe

* Eurozone industrial production increased a less-than-expected 0.5% m/m in May after an upwardly revised 1.4% m/m decline in April, according to data from Eurostat. Industrial production fell a less-than-expected 17.0% y/y, following April’s upwardly revised 20.5% y/y drop.

* Eurozone ZEW investor confidence unexpectedly declined in July after improving for eighth consecutive months. The ZEW eurozone economic expectations index fell to 39.5 from June’s 42.7, the ZEW Centre for European Economic Research reported. The current economic situation index was unchanged at -90.7 in July.

* Germany’s investor confidence unexpectedly fell in July after increasing for eighth straight months. The ZEW German economic expectations index declined to 39.5, still above the indicator’s historical-average 26.3, following June’s 44.8, ZEW data showed. The current economic situation gauge increased marginally to -89.3 from June’s -89.7.

* UK consumer prices increased 0.3% m/m in June, as forecast, after a 0.6% m/m advance in May, according to CPI data from the Office for National Statistics (ONS). The consumer-price inflation rate decelerated to 1.8% y/y, as estimated and below the Bank of England’s 2.0% y/y target for the first time since September 2007, following May’s 2.2% y/y. June core CPI rose 1.6% y/y, as expected.

* The UK retail price index fell 1.6% y/y in June, as forecast and the deepest fall since records began in 1948, after a 1.1% y/y decline in May, ONS data showed. June RPI excluding mortgage interest payments increased 1.0% y/y, following May’s 1.6% y/y rise.

* The number of respondents in the RICS June survey saying UK home values declined exceeded those reporting increases by 18.1 percentage points, the best reading since September 2007, data from the Royal Institution of Chartered Surveyors showed, signaling the UK housing market is improving.

* UK retail sales gained 1.4% y/y on a like-for-like basis and 3.2% y/y on a total basis in June, the British Retail Consortium reported.

* UK house prices fell 12.5% y/y in May, in line with forecast, after a 13.0% y/y drop in April, according to data released by the Department of Communities and Local Government.

Asia-Pacific

* The NAB Australian sentiment index rose to 4 in June from -2 in May, indicating Australia’s business sentiment turned positive for the first time since December 2007, National Australia Bank Ltd. reported. The business conditions index improved to -2 from May’s -14.

Источник: Hans Nilsson

14.07.2009