Fundamental Outlook at 1400 GMT (EDT + 0400)

By GCI Fx Research

The euro strengthened vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3980 level and was supported around the US$ 1.3790 level.  The common currency recovered from intraday losses that were prompted by a decent U.S. durable goods report that saw April headlne durable goods orders up 1.9%.  Other data saw the Chicago Midwest manufacturing index decline 1.1% in April while April new home sales increased marginally, up 0.3% in April to an annualized 352,000 level.  On a yearly basis, new home sales were down 34.0% y/y.  The uptick in nonthly housing sales activity represented the second time in three months the housing market improved and could signal a reversal in the fate of the beleaguered housing industry.  Additionally, weekly initial jobless claims fell to 623,000 while continuing jobless claims continued to move higher.  In eurozone news, European Central Bank member Constancio said policymakers have not made any decision about additional interest rate cuts.  Data released in the eurozone today EMU-16 May economic confidence improve to 69.3 while German April plant, machinery orders were off a real 58% y/y.  Moreover, German May unemployment ticked lower to 8.2% from 8.3% and the April ILO unemployment rate increased to 7.7%.  Finally, the EMU-16 April leading indicator was up +1.8%.  Euro bids are cited around the US$ 1.3435 level.

¥/ CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥97.25 level and was supported around the ¥95.20 level.  Today’s intraday high represented the pair’s strongest showing since 12 May.  Traders are citing real-world money flows as one reason why the yen has been declining as Japanese investors are said to be getting long foreign bonds.  Data released in Japan overnight saw April retail sales decline for the eighth consecutive month, off 2.9% y/y, while overall retail sales were off a revised 3.9% in March following February’s 5.7% pullback.  The Nikkei 225 yesterday stock index gained 0.13% to close at ¥9,451.39.  U.S. dollar offers are cited around the ¥104.15 level.  The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥135.25 level and was supported around the ¥131.70 level.  The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥154.90 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥89.45 level. In Chinese news, U.S. Treasury Secretary Geithner will visit China this weekend and will meet with top Chinese officials early next week.  Treasury officials said the Obama administration is “attuned to the interests of our investors and plan to listen closely to what they have to say.” The Chinese government has recently been critical of the effects of U.S. policy and how they impact the value of China’s massive foreign reserves, about 70% of which are said to be denominated in U.S. dollars.  The Treasury also said the “U.S. dollar will continue to play a very important role for a very long time.”

The British pound came off vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5850 level and was capped around the $1.6015 level.  Data released in the U.K. today saw April CBI retail sales fall with the retail sales balance lower at -17 in May from +3 in April.  Bank of England Deputy Governor Bean said the central bank is trying to improve access to financing for small to medium-sized businesses.  Cable bids are cited around the US$ 1.5535 level.  The euro appreciated vis-à-vis the British pound as the single currency tested offers around the ₤0.8765 level and was supported around the ₤0.8655 level.

Daily Market Commentary provided by GCI Financial Ltd.

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