Overall: As was pointed out last week, equity markets are dictating the direction of the dollar and today was no exception. There were no scheduled ‘red flag’ economic releases from the U.S. today but positive earnings from Lowes and positive analyst recommendations for Bank of America pushed stocks higher, leading traders to take on more risk and weaken the dollar. The DOW surged more than 200 points and the S&P added more than 20 points, closing back above the 900 level. The dollar weakened against most of the other major currencies expect the Japanese yen, which weakened across the board as traders sold lower yielding assets in favor of riskier, higher yielding assets. Oil gained almost $3 a barrel and is once again approaching the $60 a barrel level.
The National Association of Home Builders (NAHB) reported this afternoon that confidence among homebuilders increased in May to 16 from 14, the highest level reached since September, which may indicate that the housing slump is close to a bottom. It is important to keep in mind that 50 is the dividing line between positive and negative, so we still have a way to go before conditions are viewed as good. The reading of 16 was in line with expectations. U.S. building permits and housing starts will be released tomorrow morning.
The Euro (Eur/Usd) The euro strengthened on Monday as the dollar declined in the broad market; however, the gains were capped as the outlook for the European economy remains clouded. Last week the euro-zone GDP was reported to have contracted 2.5% in the first quarter, the most in thirteen years. The pair gained 50 pips on the day, closing near the 1.3530 level. Euro zone and German ZEW economic sentiment will be released tomorrow morning.
The Pound (Gbp/Usd) Cable made a strong move higher on Monday as traders exited the dollar in favor of higher yielding, riskier assets. The pound also strengthened after an industry report, released last night, showed U.K. home sellers raised asking prices in May by the most in almost a year. According to Rightmove Plc, the average cost of a home climbed 2.4% from April. The pair gained 150 pips on the day and closed above the 1.5300 level.
The Aussie (Aud/Usd) Whenever traders assume more risk, the Australian dollar tends to benefit more than most and today was no exception. The aussie gained 160 pips on Monday as equity markets moved higher on better than expected earnings and traders became more risk tolerant. The pair strengthened during the overnight sessions, gaining approximately 80 pips as the S&P futures rose and continued the momentum into the U.S. session.
The Cad (Usd/Cad) The Canadian dollar strengthened against its U.S. counterpart on Monday as equity markets moved higher and crude oil gained almost $3 a barrel. The pair dropped approximately 155 pips on the day, closing just above the 1.1600 level. There were no Canadian economic releases today as Canadian financial markets were closed for a Bank Holiday.
The Swissy (Usd/Chf) The swissy moved lower on Monday as the dollar weakened in the broad market. However, the 70 pip drop was less than 50% of the gains made on Friday. Swiss National Bank (SNB) officials continue to suggest that they will intervene in the currency markets to stem the gains of the franc, if necessary. The Swiss economic calendar is very light this week with only ZEW economic expectations scheduled for release on Wednesday morning.
The Yen (Usd/Jpy) The Japanese yen weakened across the board on Monday as global equity markets made a positive start to the week and traders dumped the Japanese currency in favor of higher yielding assets. The pair gained approximately 155 pips on the day, but traded in a range of almost 200 pips as the pair erased losses sustained at the start of last night’s Asian session. There are no Japanese economic releases scheduled for tonight’s Asian session.