• The greenback fell on Tuesday as economic data showed more signs of a global economic recovery. US existing home sales rose for a second month in May, but the gain was slightly less than expected. European purchasing manager indexes contracted the least since the beginning of the recession, but they were somewhat short of expectations. Most currency pairs are at significant technical levels. The next few days are likely to determine whether the dollar and yen will continue to gain on global recovery pessimism or whether increased optimism will benefit risk-taking and other key currencies. The S&P 500 index rose 2.06 points to 895.10. The euro advanced on comments by Bindesbank President Axel Weber that the time for stimulus is over and ECB rates will not be lowered. The EUR/USD broke its short-term downtrend; however, remaining in a possible topping formation. The GBP/USD bounced higher after testing the important long-term uptrend. The AUD/USD also held support at its long-term uptrend. The USD/CAD was unable to break its uptrend. A break of the EUR/USD 1.38 support and the other pairs' trends would indicate further dollar strength.
  • The USD/JPY fell for the sixth out of seven days. The pair is in a topping formation. Important support exists in the 94 area. If risk aversion increases, the support will be broken and the pair may fall as low as 90. We are long the pair and will play out our stop.

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Financial and Economic News and Comments

US & Canada

  • US existing home sales gained for a second month in May, rising a less-than-expected 2.4% to a 4.77 million annual rate, from a downwardly revised 4.66 million rate in April, according to figures from the National Association of Realtors. Existing home sales declined 3.6% y/y. Sales were up in the Northeast and Midwest, down slightly in the West, and flat in the South. Sales rose for both single-family units and condos/co-ops. The median price of an existing home increased to $173,000 in May but fell 16.8% y/y. Inventories of existing homes declined 3.5% at the end of May to 3.8 million available for sale, representing a 9.6-month supply at the current sales rate following April's 10.1. Excess supply is depressing prices.

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  • The FHFA US house price index was down a less-than-expected 0.1% m/m to stand at 198.61 in April after a downwardly revised 1.4% m/m decline in March, according to data from the Federal Housing Finance Agency. April house prices fell 6.8% y/y, the index showed.

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  • Manufacturing activity in the central Atlantic region rose somewhat faster in June, with the Richmond Fed manufacturing index increasing more than expected to 6 from May's 4, the latest survey by the Federal Reserve Bank of Richmond showed. Among the index's key components, shipments fell to 2 in June from 9 in May, while new orders jumped to 16 from 10 and the jobs index improved to -6 from -12.

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Europe

  • The eurozone composite PMI increased less than expected to 44.4 in June, advance June eurozone PMI data by Markit Economics showed, indicating eurozone manufacturing and services contracted at the slowest rate since September 2008, following 44.0 in May. The manufacturing PMI improved more than expected to 42.4 in June from 40.7 in May, while the services PMI unexpectedly declined to 44.5 from 44.8.
  • Germany's composite PMI declined to 43.4 in June from 44.0 in May after three straight months of improvement, according to advance June German PMI data by Markit Economics. The manufacturing PMI increased less than expected to 40.5 in June from 39.6 in May, while the services PMI unexpectedly fell to 44.3 from 45.2.
  • Germany's consumer confidence improved for a second month in July, with the GfK German sentiment index increasing to 2.9 from June's upwardly revised 2.6, according to data from GfK Group. The economic expectations index increased to -22.6 from -28.3. The income expectations index improved to -3.3 from -9.3. Consumer propensity to buy rose to 14.5 from 12.5. “The consumer climate is therefore improving slightly, although the level of the indicator remains comparatively low,” GfK said.
  • Germany's recession will likely drag into a second year in 2010, the Ifo Institute predicted, revising down its 2010 German growth forecast to a 0.3% contraction, from a previously estimated 0.2% contraction.
  • Switzerland's trade surplus narrowed to CHF2.01 billion in May from a downwardly revised CHF2.55 billion in April, the Swiss National Bank reported. Exports fell 7.4% m/m in May after an upwardly revised 9.5% m/m gain in April, while imports decreased 5.7% m/m following April's downwardly revised 1.6% m/m decline.

Asia-Pacific

  • Japan's leading economic indicators index was revised downward to 76.2 for April from a previously reported 76.5, while the coincident index was revised upward to 86.0 from a previously reported 85.8, according to final April LEI data from the Cabinet Office.

FX Strategy Update

EUR/USD USD/JPY GBP/USD USD/CHF USD/CAD AUD/USD EUR/JPY
Primary Trend Neutral Neutral Negative Neutral Neutral Neutral Neutral
Secondary Trend Positive Neutral Positive Negative Negative Positive Positive
Outlook Neutral Neutral Neutral Neutral Neutral Neutral Neutral
Action Sell Buy Buy None None Buy None
Current 1.4073 95.21 1.6453 1.0665 1.1494 0.7933 134.00
Start Position 1.3904 95.69 1.4845 N/A N/A 0.6601 N/A
Objective N/A N/A N/A N/A N/A N/A N/A
Stop 1.4235 93.40 1.5860 N/A N/A 0.7670 N/A
Support 1.3750 94.50 1.5900 1.0600 1.1000 0.7800 128.00
1.3550 91.00 1.5500 1.0400 1.0800 0.7500 125.00
Resistance 1.4000 99.50 1.6600 1.1000 1.1600 0.8200 139.00
1.4300 101.00 1.7000 1.1300 1.2000 0.8500 142.00