The dollar and yen surged on worries about the global economic recovery. The Conference Board Chinese leading economic index unexpectedly fell; Japanese unemployment rose; and US consumer confidence dropped for the first time in four months. The S&P 500 plunged 33.33 to 1041.24. Treasury two-year note yields fell to a record low; 10-year yields declined below 3%; and commodity prices plummeted.

The USD/JPY dropped to the lowest level since the flash-crash May 6. The euro continued to fall ahead of the expiration of the large-scale European Central Bank lending facility later this week. Banks have to repay €442 billion in oneyear funds to the ECB on Thursday. Investors are wondering which banks need to refinance through the ECB. Sterling declined modestly. The growth-sensitive Australian and Canadian dollars fell sharply.

The dollar index rose for a second day to 85.68. Since reaching the high 88s in early-June, the index had consolidated gains and successfully tested the 85-handle support. The dollar's renewed strength, currently pressuring stocks and commodity prices across the globe, will increase debt deflation and exacerbate the risk of a double-dip recession. Support is at the 85-handle and resistance at the 87-handle.

Financial and Economic News and Comments

US & Canada The S&P/Case-Shiller 20-city composite home price index increased a seasonally adjusted 0.4% m/m in April, the first gain in three months, after a revised 0.2% m/m decline in March, according to S&P/Case-Shiller housing data. The 20-city composite HPI rose a non-seasonally adjusted 0.8% m/m, the first rise in seven months, following March's 0.5% m/m decline. 20-city home prices grew 3.8% y/y in April, a third consecutive year-on-year gain, after a 2.3% y/y March increase.

The Conference Board US consumer confidence index dropped to a lower-than-anticipated 52.9 in June from a downwardly revised 62.7 in May, suggesting US consumer sentiment slumped for the first time in four months amid increasing uncertainty and apprehension about the future state of the economy and labor market, a Conference Board report showed, compared with June 2009's 49.3 level. The present situation index declined to 25.5 in June, a 3-month low, from a downwardly revised 29.8 the prior month. The expectations index fell to 71.2, also a 3-month low, from May's downwardly revised 84.6.

Europe The eurozone economic sentiment index unexpectedly increased to 98.7 in June from 98.4 in May, showing eurozone economic confidence improved fractionally this month, according to data from the European Commission. Consumer confidence increased to -17 in June from -18 a month earlier and confidence in the services sector advanced to 4 from 3. Industrial confidence remained at -6 in June. In a separate measure of business confidence released by the EC, the business climate indicator held at 0.37 in June after 14 straight monthly increases.

Asia-Pacific Japan's seasonally adjusted industrial production unexpectedly slipped 0.1% m/m in May after a 1.3% m/m increase in April, preliminary May IP data from the Ministry of Economy, Trade and Industry showed, with the IP index declining to 95.9 from April's 96.0. May IP rose 20.2% y/y nsa, a sixth straight year-on-year rise, following a 25.9% y/y April gain.

The Japanese seasonally adjusted unemployment rate unexpectedly rose to 5.2% in May, a third consecutive monthly rise and the highest since December, from 5.1% in April, according to data from the Statistics Bureau. The economy lost 240,000 jobs from a month earlier, registering a fourth straight monthly decline and bringing the seasonally adjusted number of employed people to a two-decade low. The job-to-applicant ratio, a leadingindicator of employment trends, increased to 0.50 in May, the highest level in more than a year and suggesting there were 50 positions for every 100 candidates, compared with April's 0.48.

  • Japanese household spending unexpectedly fell 0.7% y/y in May after falling 0.7% y/y in April, a separate report from the Statistics Bureau showed.
  • FX Strategy Update

     
    EUR/USD
    USD/JPY
    GBP/USD
    USD/CHF
    USD/CAD
    AUD/USD
    EUR/JPY

    Primary Trend
    Negative
    Neutral
    Negative
    Positive
    Negative
    Neutral
    Negative

    Secondary Trend
    Negative
    Neutral
    Neutral
    Neutral
    Neutral
    Negative
    Negative

    Outlook
    Negative
    Neutral
    Positive
    Positive
    Positive
    Negative
    Negative

    Action
    Short
    None
    None
    Long
    Long
    None
    None

    Current
    1.2188
    88.53
    1.5065
    1.0818
    1.0546
    0.8476
    107.89

    Start Position
    1.4628
    N/A
    N/A
    N/A
    1.0247
    N/A
    N/A

    Objective
    N/A
    N/A
    N/A
    N/A
    N/A
    N/A
    N/A

    Stop
    1.2680
    N/A
    N/A
    1.0680
    1.0075
    N/A
    N/A

    Support
    1.2150
    88.50
    1.4800
    1.0800
    1.0200
    0.8540
    107.50

    1.1900
    86.50
    1.4450
    1.0600
    0.9900
    0.8100
    106.00

    Resistance
    1.2400
    91.00
    1.5200
    1.1000
    1.0550
    0.8800
    114.00

    1.2550
    93.50
    1.5400
    1.1100
    1.0750
    0.9000
    120.00