Daily Forex Analysis by Finexo.com 04/05/2010

Past Events:

• USD ISM Manufacturing PMI out at 60.4 versus expected 60.0, prior 59.6
• USD Core PCE Spending m/m out at 0.1%, versus expected 0.0%, prior 0.0%
• USD Personal Spending m/m personal spending m/m out at 0.6%, versus expected 0.7%, prior 0.5% (revised up)
• EUR German Retail Sales m/m out at -2.4%, versus expected 0.0%, prior 1.1% (revised up)
• AUD Cash Rate out at 4.50%, versus expected 4.50%, prior 4.25%
• NZD Labor Cost Index out at 0.3%, versus expected 0.4%, prior 0.3%

Upcoming Events:

• GBP Halifax HPI m/m (all this week)
• GBP Manufacturing PMI (0930GMT)
• GBP Net Lending to Individuals m/m (0930GMT)
• USD Pending Home Sales m/m (1500GMT)
• AUD Building Approvals (0230GMT)

Market Commentary:

The U.S Dollar rose against the Euro and Yen yesterday on growth in U.S. manufacturing and doubts about Greece’s ability to honor a pledge for further austerity measures in return for an aid package.

The Euro continued to fall against the U.S Dollar yesterday as longer term concern over the Euro-Zone sovereign debt contrasted with solid U.S economic data. The U.S data, which showed a strong reading in manufacturing and construction spending, illustrate a U.S economy that continues to drag itself out of the worst recession since the Great Depression. This compares with the Euro Zone where investors remain worried about the implementation of the unprecedented €110billion aid package for Greece. The EUR/USD closed at 1.31974 yesterday, after hitting a low of 1.31530.

The U.S. manufacturing sector grew in April at its fastest pace in almost six years and at a rate that was above expectations, according to an industry report released Monday. The Institute for Supply Management’s said its index of national factory activity rose to 60.4 in April from 59.6 a month earlier. The data represents a ninth straight month of gains, with the headline index at its highest since June 2004.

The U.S Dollar hit an 8-1/2 month high against the Yen as U.S. manufacturing data boosted optimism about the economic recovery. Following the release of the report, the USD/JPY struck a high of 94.774, up 0.82% from yesterday’s opening price. Strong U.S. data has increased expectations the Federal Reserve will raise interest rates later this year, while the Bank of Japan is seen keeping rates low indefinitely. The USD continued to appreciate against the Japanese currency this morning as signs the global economic recovery is gaining momentum damped demand for Yen as a refuge. The USD/JPY rose to a trading high of 94.970, up 0.30% from today’s opening price of 94.689.

Consumer spending in the U.S. rose in March by the most in six months, pointing to a recovery that may accelerate when the economy creates more jobs. Boosted by spending on autos and other durable goods, real U.S. consumer spending increased 0.6% to reach a record high level in March, at last surpassing the pre-recession peak set in November 2007, the Commerce Department reported yesterday. With spending growing much faster than incomes in March, the personal savings rate fell to 2.7%, the lowest since September 2008.

Later today, the National Association of Realtors will release the number of pending home sales for the month of March. Pending home sales are expected to rise for the second consecutive month in March, which could be an indication that existing home sales will pick-up in the second quarter. In February, pending sales in the U.S recorded their sharpest jump since 2001, rising a record 8.2%. This time around, the market predicts a slightly smaller rise of 3.9%.

Tomorrow, the US will release its ADP Non-Farm Employment Change, an important gauge of the labor market conditions and generally considered a predictive index for Friday’s highly awaited Non-Farm employment change. This ADP figure is predicted to show an increase of 29K in the number of employed people compared to a loss of 23K in the previous month.

Canada’s dollar rose versus the greenback as U.S. stocks climbed, crude oil reached $87 a barrel and gold touched the highest level since December. Yesterday, the currency touched on C$1.00989, gaining 0.58% against its American counterpart.

The Pound’s retreated from $1.53887 high on Friday extended lower on Monday as the pair reached a daily low of $1.52095. The GBP/USD closed yesterday at 1.52471 and has continued to fall in trading sessions this morning, touching on a low of 1.52103. This morning, Britain will announce a sequence of notable reports including the U.K. Manufacturing PMI (Purchasing Managers’ Index), a leading indicator of economic conditions measuring the activity of purchasing managers in the manufacturing sector (today 09:30 GMT), the Bank of England’s Mortgage Approvals Report, a leading indicator of housing market activity measuring newly issued home loans, (at 0930GMT), and the U.K. Net Lending to Individuals, a gauge of consumer credit conditions (also at 0930GMT). The Pound continues to remain under pressure from this week’s election. According to recent polls, the U.K. election is still too close to call; indicating that there is still is chance that the election may result in no party having a majority in parliament. Without a majority calling the shots, it seems unlikely that the parliament will be able to tackle its sovereign debt problems and its budget deficit. Without guidance and direction, the government may be unable to come up with a viable plan to fight its fiscal issues, if this occurs, then look for the U.K. debt rating to be slashed at some point this year. This action will compound the weakness in the British Pound and drive the currency lower.

Australia’s central bank raised its benchmark interest rate for the sixth time in seven meetings after inflation accelerated and officials judged the nation is insulated from the Greece-sparked sovereign debt concerns. RBA Governor Glenn Stevens increased the overnight cash rate target by 0.25bps to 4.5%. However, following the announcement the Australian dollar weakened against 13 of its 16 most-traded counterparts. The Aussie touched on a low of 0.92180USD (down 0.54% from the day’s opening price), after Stevens said that interest rates for most borrowers will now be “around average levels” thereby eroding the case for more increases. However, the Australian currency managed to rebound and is currently trading close to its opening price. Stevens, unlike counterparts in the U.S. and Europe, is under pressure to extend a world-leading round of rate increases as Australia’s economy accelerates, stoking inflation and property prices, which surged more than 20% in the 12 months through March. Stronger growth and higher borrowing costs have pushed the Australian dollar up 26% in the past year.

Written by Finexo.com