Overall: News that three major banks, Goldman Sachs, JP Morgan and Morgan Stanley, are trying to repay the TARP bailout funds fueled speculation that banks are in better shape than previously thought and weakened the dollar as traders saw less of a need for safe havens. The dollar weakened across the board on Tuesday as the news broke about banks repaying TARP money overnight and although the greenback strengthened after the disappointing building permits and housing starts releases this morning, the dollar was unable to build on the momentum. U.S. equity markets were unable to hold onto gains and closed the day slightly lower. Oil prices rose but closed below $60 a barrel.
U.S. Building permits and housing starts posted disappointing numbers this morning. Building permits came in at 0.49M, lower than the 0.53M that was expected and below the previous read of 0.51M. Housing starts posted a 0.46M read, also lower than the 0.52M that analysts had expected and below the previous read of 0.53M
The Euro (Eur/Usd) The euro moved higher on Tuesday after the German ZEW economic sentiment rose to 31.1, much higher than the 20 read that was expected and the euro area ZEW also beat expectations with a 28.5 number. Movement in the euro still seems sluggish when compared to the other major currencies against the dollar, a result of the poor GDP numbers posted last week. On the day, the pair gained 75 pips.
The Pound (Gbp/Usd) Cable continues to move higher, reaching the highest level seen in 2009, as U.K. stocks posted gains on better than expected earnings. The U.K. consumer price index declined in April to 2.3% from 2.9% in March. The core number declined to 1.5%. The pair flirted with the 1.5500 level for most of the U.S. session, breaking above the level on different occasions but unable to hold. On the day, the pair gained 135 pips and closed near 1.5490.
The Aussie (Aud/Usd) Despite U.S. equity markets closing lower, the aussie posted gains for the second consecutive day. The aussie moved higher after the London open, breaking above Monday’s high and the 0.7700 resistance area and the trend continued into the U.S. session. Gold prices moved higher as the dollar weakened giving additional support to the Australian dollar. The pair gained approximately 100 pips on the day closing just above the 0.7750 level.
The Cad (Usd/Cad) The Canadian dollar strengthened once again on Tuesday helped by higher equity markets in Asia and Europe and rising crude oil prices that are again approaching the $60 a barrel level. The pair dropped approximately 75 pips on the day, breaking and holding below the 1.1600 level. There were no Canadian economic releases today but CPI and leading index numbers will be released tomorrow morning.
The Swissy (Usd/Chf) The Swiss franc strengthened for a second straight day on Tuesday as the dollar weakened in the broad market. The pair tested the 1.1160 resistance area during last night’s Asian session but the pair reversed direction at the London open. On the day, the pair lost approximately 55 pips and closed just below the 1.1100 level.
The Yen (Usd/Jpy) The Japanese yen strengthened slightly against the dollar on Tuesday as U.S. equities were unable to hold onto gains and closed in the red. The pair traded in a narrower 80 pip range and closed lower by 30 pips, testing the 96.00 level. Japan will release preliminary GDP numbers tonight and analysts are expecting a significant drop of 1% from the previous read of -3.2%