European equities managed to finish the session in the black on Friday despite continued conjecture over the likelihood of Greece exiting the Euro-zone with further concerns over the health of Spain's banking system also remaining in focus. It goes without saying; the negativity from the Euro-region remains the key stumbling block across markets with Greek drama's remaining front row and centre. Borrowing cost from Europe's most vulnerable countries continue to grow with Spanish 10-yr yields firmly above the 6-percent region while Italian 10yr yields trail behind but remain at elevated levels above 5.5 percent.

Despite finishing the week in positive territory, U.S benchmark indices capped off Friday with moderate losses with the S&P and DOW losing 0.22 and 0.60 percent. A better-than-expected consumer confidence reading from the University of Michigan helped to moderate losses with the gauge rising to an index level of 79.3, outpacing the previous reading and estimated 77.8.

The Euro notched up its fourth consecutive day of selling with the EURUSD pair forging fresh 23-month lows of $US1.2495. Meanwhile, the Australian dollar remained hog-tied and bound below 98 US cents with noise from the European region continuing to promote downside across the risk spectrum. Although we've seen resilience from the local unit relative to that of the Euro the local unit remained the commodity currency of most resistance over the week to finish 0.9 percent lower against the greenback in comparison to the Kiwi and CAD which finished down 0.3 and 0.7 percent respectively.

US Dollar vs. Major 21st - 25th May


The Week Ahead

Despite relative support for the Australian dollar throughout the week, it's clear the local unit remains at the mercy of European markets with the only certainty that of Euro-induced volatility. Continued negativity from both sides of the Atlantic should find price action find short-term support at 96.6 US cents before another leg-down is seen with 93.8 / 94 US cents a likely short-term target. On the flipside, risk barometers such as U.S equity markets saw mild gains last week - a continuance  of which may present a key inflection point across the risk spectrum with a subsequent short squeeze. We anticipate such a scenario to have a limited life-span before broader European concerns manifest once again. 

The week ahead will almost certainly be driven by Eurocentric headlines with the Greece's dilemma's threatening to reach critical mass levels with each passing day. Alongside a number of mid-tier data points, the health of Europe's largest economy will be in focus with German CPI and unemployment data on the docket with ECB President Mario Draghi also due to give a speech.

Across the Atlantic, the health of U.S employment will also be in focus with non-farm payrolls due on Friday but not before a series of jobs relative precursors throughout the week to guide expectations with weekly jobless claims, ADP private sector gauge and Challenger job cuts on the bill. The U.S economy is expected to have created 150,000 new jobs in May from a previous 115,000 with the official unemployment rate expected to remain at 8.1 percent. Also in focus this week will GDP and core consumer expenditure (Thursday) with ISM manufacturing gauge due on Friday.

The key directive from a local perspective will be retail sales due for release on Wednesday with Private sector credit and AIG manufacturing data due on Thursday. Official Chinese manufacturing PMI along with the HSBC equivalent will be key to the local unit's movements on Friday.