• Falling versus most key currencies Friday, the greenback was pressured by continued inflation concerns as well as surging commodity prices resulting from the Federal Reserve’s too easy monetary policy. The AUD/USD rose on speculation rising commodity prices will force the Reserve Bank of Australia to keep interest rates at a 12-year high. The USD/CAD advanced after finding the 0.98-handle support after falling below par earlier this week. The GBP/USD was little changed, testing the 1.98-handle resistance. The yen and Swiss franc gained as US equity prices fell ahead of the three-day weekend in the US. The USD/JPY, USD/CHF and US stocks are at important support levels. If the stocks break support, the currency pairs will possibly fall further.
  • Having gained since successfully testing the 1.54-handle support, the EUR/USD rose today despite weakerthan-expected eurozone PMI data. The pair may develop a top and we may see a test of the 1.59-1.60 resistances. If those resistances hold, the pair will fall.


Financial and Economic News and Comments

US & Canada

  • US existing-home sales fell a slightly less-than-expected 1.0% m/m to a 4.89 million annual rate, the National Association of Realtors said. The median home price fell 8.0% y/y to $202,300 in April but rose 1.1% m/m. Inventories of homes rose 10.5% in April to 4.55 million available for sale, representing an 11.2-month supply at the current sales pace following March’s revised 10.0-month supply. Regionally, existing-home sales in April fell 6.0% in the Midwest and 4.4% in the Northeast. Demand rose 6.4% in the West. Sales were unchanged in the South. Overall, sales and prices were in line with expectations, but the surging inventories are bearish for the housing sector.



  • The eurozone composite PMI fell to a lower-than-expected 51.1 in May from 51.9 in April, NTC Economics Ltd. reported. The decline was led by the services index, which fell to 50.6 in May from 52.0 in April, matching a 4 1/2-year low reached in January. The manufacturing activity index fell to 50.5 in May, the lowest since August 2005, from April’s 50.7. Overall, the figures show another indication that the eurozone economy is decelerating.


  • The German manufacturing PMI declined slightly less than expected to 53.5 in May from 53.6 in April, and the services PMI fell slightly more than expected to 53.7 in May from 54.6 in April, NTC Economics Ltd. reported. The readings indicate continued German economic growth but at a slower rate.


  • The UK Q1 2008 GDP rose 0.4% q/q, the slowest pace since 2005, from 0.6% q/q in Q4 2007, the Office for National Statistics said. The result matched the agency’s original estimate and the median forecast. The GDP expanded 2.5% y/y.



  • The Bank of Japan policy makers said they are concerned about rising inflation expectations. Consumers’ inflation expectations were rising, reflecting the ongoing rise in the price of daily necessities, and this warranted attention, some BOJ members said at the April 8-9 policy meeting, according to BOJ minutes released today. The seven board members said the risk of higher inflation worldwide is increasing because of costlier commodities and crude oil. They said the increase in raw-materials costs will cause Japan’s economy to slow for the time being before returning to a moderate growth path, according to the minutes.

FX Strategy Update