• The dollar fell for a fourth day versus most major currencies on improving risk sentiment and more signs of a global economic recovery. The Conference Board US LEI signals a US economic recovery (finally catching up with our Globicus LEI forecast), while US initial jobless claims, considered a coincident or lagging indicator at recoveries, have likely peaked. Falling US stock prices did not boost the greenback as investors have been worrying more about the huge US dollar liquidity from various stimulus programs. The S&P 500 declined 15.14 points to 888.33. The dollar index fell to 80.50, testing the important 80-area support. The USD/JPY dropped to the important 94-area support. The euro rose on better-than-expected purchasing manager sentiment indicating the eurozone economy is stabilizing. The Australian and Canadian dollars rose modestly.
  • After Standard & Poor’s signaled the UK may lose its top credit rating, the GBP/USD initially fell but later surged as investors have worried more about the supply of US dollars. Rating agencies are not very forward looking anyway and S&P did not say anything new about the UK economy. Better-than-expected UK retail sales also helped the pair. Having advanced in a rising trading channel, the GBP/USD reached the highest level since November 11. The pair may need some consolidation as it is overbought, at resistance from the upper trading band. However, the consolidation may not occur as momentum is strong and the pair has broken resistance from the 200-day moving average, which now acts as support.

Financial and Economic News and Comments

US & Canada

  • The Conference Board US leading economic indicators index, measuring future economic activity, rose a more-than-forecast 1.0% in April, the largest increase since November 2005, following March’s upwardly revised 0.2% decline, LEI data from the Conference Board showed. The coincident economic index, measuring current economic activity, was down 0.2%, easing the pace of declines from March’s 0.6% decrease. The Conference Board April LEI confirms our Globicus LEI forecast of a US economic recovery, possibly as early as July (see our March 9 report).

  • US initial jobless claims fell 12,000 to a higher-than-estimated 631,000 in the week ending May 16, after the previous week’s upward revision to 643,000, according to data from the Labor Department. The 4-week average of new jobless claims declined 3,500 to 628,500. Continuing claims in the week ending May 9 climbed 75,000 to a record-high 6,662,000, following the preceding week’s upward revision to 6,587,000. The insured unemployment rate in the week ending May 9 rose to 5.0%, the highest level since December 1982, from 4.9%. Overall, the figures signal a prolonged weakness in the US labor market even as the recession is easing.

  • The Philadelphia Fed manufacturing index increased less than expected to -22.6 in May from -24.4 in April, indicating manufacturing in the Philadelphia region contracted at the slowest rate in eight months, according to the Federal Reserve Bank of Philadelphia’s May 2009 Business Outlook Survey.
  • Canada’s wholesale sales fell for a sixth consecutive month in March, declining a less-than-expected 0.6% m/m to C$40.5 billion ($35.4 billion), the lowest level since October 2006, following February’s downwardly revised 0.9% m/m decline, according to data released by Statistics Canada.

Europe

  • The eurozone composite PMI rose more than expected to 43.9 in May, indicating eurozone manufacturing and services shrank at the slowest rate in eight months, advance May PMI data by Markit Economics showed, following 41.1 in April. The manufacturing PMI rose to 40.5 in May from 36.7 in April, while the services PMI advanced to 44.7 from 43.8, both more than expected.
  • The German manufacturing PMI increased more than anticipated to 39.1 in May from 35.4 in April, while the services PMI improved to 46.0 from 43.8, advance May PMI data by Markit Economics showed, indicating Germany’s manufacturing and services contracted at a slower rate in May.
  • UK retail sales increased for a second month in April, rising a more-than-estimated 0.9% m/m, according to figures from the Office for National Statistics (ONS). Retail sales gained 2.6% y/y. Meanwhile, business investment in Q1 2009 fell 5.5% q/q and 6.8% y/y, worse than expected.
  • The UK budget deficit climbed to £8.5 billion ($13.4 billion) in April, the most for the month since records started in 1993, compared with a £1.8 billion deficit in April 2008, the ONS said. Tax revenue was down 9.5% and spending was up 5.4%.

Asia-Pacific

  • Japan’s tertiary industry index declined a more-than-expected 4.0% m/m in March after a downwardly revised 1.3% m/m decline in February, according to data from the Ministry of Economy, Trade and Industry.
  • The Australian inflation rate slowed to 2.3% in May from 2.4% in April, according to the latest Melbourne Institute survey of consumer inflationary expectations. May’s result was the same as March’s, the survey’s lowest figure since December 1998.

FX Strategy Update

EUR/USDUSD/JPYGBP/USDUSD/CHFUSD/CADAUD/USDEUR/JPY
Primary TrendNeutralNeutralNegativeNeutralNeutralNeutralNeutral
Secondary TrendPositivePositiveNeutralNeutralNegativePositivePositive
OutlookPositiveNegativePositiveNegativeNegativePositivePositive
ActionBuyNoneBuyNoneNoneBuyNone
Current1.389394.371.58431.09331.13600.7781131.06
Start Position1.3149N/A1.4845N/AN/A0.6601N/A
ObjectiveN/AN/AN/AN/AN/AN/AN/A
Stop1.3435N/A1.5135N/AN/A0.7330N/A
Support1.360094.001.55001.07001.13000.7450128.00
1.320091.501.50001.05001.10000.7200125.00
Resistance1.400099.001.59001.13001.15500.7800136.00
1.4500101.001.62001.15001.17500.8000139.00