• The dollar fell versus its rivals on Tuesday as risk aversion eased. World Bank President Bob Zoellick said China may diversify reserves away from the greenback. The US Treasury allowed 10 of the nation's largest banks to repay $68 billion in government bailout money. “These repayments are an encouraging sign of financial repair, but we still have work to do,” Treasury Secretary Timothy Geithner said. US stocks ended mostly higher. The S&P 500 rose 3.29 points to 942.43 as technology stocks gained offsetting weak consumer stocks. The yen rose. Both the IMF and the US told Europe to address its banking problems. However, the euro advanced despite Germany's weak industrial production and exports. ECB's Jürgen Stark said the ECB will abandon low interest rate policy when the eurozone economy recovers. The Canadian and Australian dollars rose as risk appetite and commodity prices increased.

  • The GBP/USD gained on improving UK housing data and signs UK Prime Minister Gordon Brown may survive calls for his resignation. Brown seems to be better liked by the market than the electorate and his own party. The pair is in a large rounding formation and found support at its recent uptrend. There are major resistance in the 1.65 area and support in the 1.59.

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Financial and Economic News and Comments

US & Canada

  • US wholesale inventories fell for an eight consecutive month in April, declining a more-than-expected 1.4% m/m to a seasonally adjusted $$405.4 billion, after March's downward revised 1.8% m/m drop, according to data from the Commerce Department. Wholesale sales declined 0.4% m/m to a seasonally adjusted $309.4 billion, following March's 2.4% m/m decrease. The inventory-to-sales ratio declined to 1.31 in April from 1.32 in March, both above April 2008's 1.12. Wholesale inventories fell 6.2% y/y in March, while wholesale sales dropped 19.5% y/y.

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Europe

  • Germany's seasonally adjusted exports declined a more-than-expected 4.8% m/m in April after a downwardly revised 0.3% m/m increase in March, according to figures from the Federal Statistical Office. Seasonally adjusted imports unexpectedly fell 5.8% m/m, following March's downwardly revised 0.2% m/m increase. The trade surplus shrank to €9.4 billion ($13.1 billion) in April from €11.3 billion in March. The current account surplus narrowed to €5.8 billion from March's upwardly revised €11.0 billion.

  • Germany's seasonally adjusted industrial production unexpectedly declined 1.9% m/m in April after an upwardly revised 0.3% m/m increase in March, IP data from the Federal Ministry of Economics and Technology showed. April IP fell a more-than-expected 21.6% y/y nsa wda.

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  • The number of respondents in the RICS May survey saying home values declined exceeded those reporting increases by 44.1 percentage points, the best reading since November 2007, according to data from the Royal Institution of Chartered Surveyors, signaling some stabilization in the UK housing market. Property sales per agent increased to 11.8 in the three months through May, the highest since August 2008.

  • UK retail sales values declined 0.8% y/y on a like-for-like basis in May and increased only 0.8% y/y on a total basis, the British Retail Consortium reported.

  • UK house prices fell a less-than-expected 13.0% y/y in April after a 13.6% y/y drop in March, the Department of Communities and Local Government said.

Asia-Pacific

  • The NAB Australian sentiment index rose to -2 in May, indicating Australia's business confidence climbed to the highest level since February 2008, from -14 in April, National Australia Bank Ltd. reported. The business conditions index declined to -14 from April's -10. The forward orders index declined to -14 from -11.

  • Australia's job advertisements were little changed (-0.2% m/m) in May after a record 7.5% m/m decline in April, Australia and New Zealand Banking Group Ltd. reported. May job advertisements plunged 49.1% y/y.

  • The Japanese leading economic index increased to a less-than-estimated 76.5 in April from a downwardly revised 75.5 in March, according to preliminary April LEI data from the Cabinet Office, signaling Japan's recession is easing. The coincident index, measuring the current state of the economy, improved to 85.8, the first gain in 11 months, from March's downwardly revised 84.8.

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  • Japanese machine tool orders fell 79.3% y/y in May, preliminary data by the Japan Machine Tool Builders Association showed, following an 80.4% y/y drop in April.

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 Positive Positive Negative Negative Positive Positive
Outlook Neutral Neutral Neutral Neutral Neutral Neutral Positive
Action Buy Buy Buy None None Buy None
Current 1.4068 97.38 1.6306 1.0782 1.1042 0.8013 136.96
Start Position 1.3149 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 1.3770 N/A 1.5390 N/A N/A 0.7670 N/A
Support 1.3700 94.00 1.5900 1.0600 1.0800 0.7800 128.00
1.3500 91.50 1.5500 1.0400 1.0500 0.7500 125.00
Resistance 1.4100 99.50 1.6500 1.1000 1.1300 0.8200 139.00
1.4300 101.00 1.7000 1.1300 1.1500 0.8500 142.00