• The greenback gained in NY trading Tuesday despite lower-than-expected US consumer sentiment and continued weakness in the US housing market. The yen and Swiss franc fell as US equity prices rose increasing demand for carry trades. The dollar block currencies declined as oil and gold prices were lower. Sterling fell on dropping UK mortgage approvals.
  • The EUR/USD fell after weaker-than-expected German consumer confidence indicated the US economic slowdown is spreading to Europe. The pair is likely to test the 1.57-handle support. If it is broken, the pair will possibly fall to 1.54.


Financial and Economic News and Comments

US & Canada

  • The S&P/Case-Shiller home-price index for 20 US metropolitan areas fell 2.2% m/m and 14.4% y/y in April, the largest year-on-year drop since the data first published in 2001. The index has fallen every month since January 2007, showing no signs of improving.


  • The Conference Board US consumer confidence index dropped more than expected to 57.2 in May, the lowest since 1992, from 62.8 in April. The present situation index fell to 74.4 from an upwardly revised 81.9. The expectations index declined to 45.7 from 50.0. This is the lowest reading since 1974, when rising inflation and gas prices also weighted down consumer sentiment.


  • US new-home sales unexpectedly rose 3.3% m/m to an annual pace of 526K in April from March’s 509K pace, the Commerce Department said. The March rate was the lowest pace since 1991. Sales of new homes fell 42.0% y/y in April, the biggest year-over-year decline since September 1981. The median sales price rose 1.5% y/y in April to $246,100.



  • The GfK consumer climate index for Germany fell a lower-than-expected 4.9 in June from 5.6 in May, as rising inflation has clouded the mood among consumers, the GfK market research said. The economic outlook indicator, income expectations and the propensity to buy all suffered considerable losses in May as inflation fears increase. Economic expectations fell by almost 10 to 13.4 in May. After three months of successive growth, income expectations fell by 14.8 to -4.3. The willingness to buy fell by 15.7 to -20.4.


  • Germany’s Q1 2008 GDP grew 1.5% q/q, compared with 0.3% q/q growth in Q4 2007, according to final figures from the Federal Statistics Office. The Q1 GDP rose 2.6% y/y.


  • UK mortgage approvals fell 39% y/y in April on tighter lending, the British Bankers’ Association said.


  • Bank of Japan Governor Masaaki Shirakawa said adjusted for inflation, the current levels of short-term rates are near zero or slightly negative….The levels are appropriate given the economy’s condition. The BOJ is focusing on downside risks to the economy and has no predetermined direction for policy, Shirakawa said. The biggest change since October was that rising energy and raw-material costs are having a more pronounced effect on Japan’s economy and that led the BOJ to drop its call for higher rates, he said.
  • Japan’s Economic Minister Hiroko Ota said the government is concerned about soaring oil prices and possible damage to profits and consumer spending.

FX Strategy Update