USD-EUR News and Analysis

USD

The USD fell Friday after positive news from the EU Summit helped to boost risk appetite leading to rapid gains for riskier currencies but losses for the Greenback.

Data releases came out as expected with Core Personal Consumption Y-Y in May falling 2 basis points to 1.8%, from 2.0% in line with expectations and month-on-month rising by 0.1% when a 0.2% increase was forecast.

Personal Income in May remained the same as the previous month in which it showed a 0.2% rise; Personal Spending fell slightly showing no rise when it had shown a rise of 0.1% previously.

Overall the data had little impact on the USD as it did not change the outlook for monetary policy which remains in 'wait-and-see' mode.

EUR

The EUR rose after news from the EU Summit beat all expectations.

The 3 Key measures were agreed; 1. the creation of a joint supervisory scheme for EU banks and more importantly once set up by the end of the year for the authorization of direct funding of banks by the EFSF and ESM, without having to involve member states as intermediaries, 2. the pledge to put EUR120-B into growth projects including EUR10-B to the European Investment bank (EIB), and 3. relates to Spain's banking crisis and was to ensure that the EFSF and ESM did not gain seniority status as creditors compared to all others as they would have done normally.

This helps ensure that Spain can still tap capital markets even after the official bailout, at reasonable rates.

Overall the measures were intermediate in importance and can be seen as something of a band-aid solution to soothe bond markets.

They are also politically motivated as they successfully avoid state responsibility for bailing out banks which now becomes a European responsibility leading to more Europe via the back door.

JPY

The Yen weakened against riskier currencies after the announcement of positive measures agreed at the EU Summit helped lift risk appetite.

On the data front Manufacturing PMI fell to 49.9, below 50 and therefore a sign of contraction rather than growth; Household Spending in May rose by 4.0% Y-Y when a fall of 2.5% rise had been expected; the Jobless Rate fell by 2 basis points to 4.4% from April's 4.6% reading; CPI ex-fresh food fell -0.1% when no-change had been expected; CPI Ex food and energy fell -0.6% in line with expectations; CPI in May rose by 0.2% in line with expectations although this was below the 0.4% rise in May 2011.

Industrial Production rose by 6.2% in May 2012 compared to 12.9% in May of 2011, which was below expectations of a 6.7% rise.

Overall the data was too mixed to be able to draw any conclusions, although the continued fall in inflation and the lower manufacturing PMI leave the door firmly open for the possibility of more QE (QE-3).

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.