The dollar slumped against the majors on Friday, falling to 1.56-versus the euro and 103.54 against the yen. The catalyst for the greenback¡¯s losses was a dismal report on US consumer confidence, highlighting the current bleak economic outlook. The University of Michigan survey of consumer confidence fell to its lowest level in 28-years at 59.5 in May compared with 63.2 a month earlier. The expectations component fell to 51.7 versus 53.3 from April, while the 1-year inflation index edged up to 5.2 from 4.8.

Housing reports improved in April, raising speculation that the struggling housing market may be starting to bottom. Building permits rose by 4.9% in April versus a 5.7% decline a month earlier to 978k units. Meanwhile, housing starts rebounded sharply reversing the 11.9% decline in March, rising in April by 8.2% to 1.032 million units. Nonetheless, the disappointing confidence report set the tone for the currency market reinforcing fears that the US consumer will continue to scale back purchases and further exacerbate the economic slowdown.

The US economic calendar next week is light, with the releases of April PPI, weekly jobless claims, and new home sales.

Euro Edges Higher

The euro continued to recover, edging back toward the 1.56-level against the dollar with bullish momentum building. The single currency¡¯s rally stalled near the 20-day moving average, while the MACD points toward further gains next week.

With the strong Eurozone data this week, we look for the euro to continue to push higher and anticipate a test of 1.5750. The reports slated for next week consists of Germany¡¯s ZEW survey, Ifo survey, Eurozone industrial orders, and Eurozone manufacturing PMI.