•  Euro climbs to session highs with German data output

•  JPY strengthens as Japanese market reopens after the 4-day holiday

•  Aussie sinks after the RBA’s announcement to slash rates

USD – The US dollar weakened against its majors with the exception of the Aussie dollar and the pound following positive sentiment that the US is on its way to recovery from a sluggish economy. The Standard & Poor 500 rose 0.3% to 1,620.85, reaching 4-day record and the Dow Jones Industrial Average rose above 15,000 for the second time ever as earnings at several companies, such as Societe Generale SA, Direct TV and Allianz SE beat estimates. Although the boost in numbers signaled an upbeat economy, the Fed will be open-minded to raise or lower their plan to keep bond buying at $85B per month to facilitate continuing market progress. This Friday, Fed Chairman, Ben Bernanke will be speaking at the Chicago Fed Conference, but more importantly, market participants await the release of retail sales, CPI and the housing market.

EUR – The euro rose slightly against the US dollar after German industrial orders surpassed forecasts climbing to a session high of 1.3123, up from 1.3077 just before the data. Industrial orders for March rose 2.2% from February, over the forecast of a 0.5% drop, providing some relief of the single currency. Just before the data release, ECB president Draghi’s reiterated yesterday that the central bank is prepared to cut interest rates even further than the 25bps it had last week, if the euro zone continues to deteriorate. Analysts say despite data showing signs of a recovery, which is supporting the euro, gains could be limited due to expectations the ECB could ease monetary policy further.  Market participants await the release of the first quarter economic performance report which is due next Wednesday.

GBP – The sterling remained relatively steady against the US dollar and edged down from a near 3-month high against the euro following the recent German data release. The UK avoided a triple-dip recession, as sterling appreciated 2.6% in the past month, supported by last week’s positive services and manufacturing data. Analysts believe the BoE is not expected to do any quantitative easing in the meantime or at least until Bank of Canada chief, Mark Carney takes over in early July. The next major British economic indicator is the March industrial output data due on Thursday alongside the BoE policy meeting where they are expected to keep both rates and their asset purchase program as they currently stand. 

JPY – The Japanese yen strengthened for the first time in 4 days against the US dollar after Japanese markets reopened following a 4-day holiday weekend. Previous readings show yen weakening beyond 99 for the first time since April 26th on May 3rd, after US Labor Department data showed payrolls showed better-than-expected last month and the jobless rate declined to 7.5%. With the yen dropping 20% in the past 6 months, the most among 10 developed-market currencies, economists say that investors want to know that the US economy will strengthen further, which will cause the yen to break 100.

Commodity Currencies – The Canadian dollar strengthened to a 2-1/2 month high against the US dollar as global shares hit their strongest level in almost 5 years and the major central banks signaled they will remain supportive to growth. The CAD touched 1.0036 vs. the greenback during the session, its strongest level since February 15. It is likely to be range-bound for most of the session as traders await data on Canadian housing to be released on Wednesday. Expectations of the housing report will show data on the pace of new homebuilding to slow to a seasonally adjusted annual rate of 175,000 units in April, down from 184,000 units in March. Also this Friday, is the release of Canadian employment data which is expected to show the economy added 15,000 jobs in April and unemployment rate to remain steady at 7.2%. The Australian dollar sank to a 2-month low after a shocking announcement from the RBA to slash rates by 25bps to a record low of 2.75%. The AUD is expected to remain under pressure as investors await the release of a host of economic data this week and next from their major currency supporter, China.

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