Daily Forex Analysis by Finexo.com 06/05/2010

Past events:

• USD Pending Home Sales m/m out at 5.3%, versus expected 3.9%, prior 8.3%
• USD Factory Orders m/m out at 1.2%, versus expected 0.0%, prior 1.3%
• GBP Manufacturing PMI out at 58.0, versus expected 57.5, prior 57.2
• GBP Net Lending to Individuals out at 0.6B, versus 2.0B, prior 2.4B
• AUD Cash rate out at 4.5%, versus expected 4.5%, prior 4.5%
• AUD Building Approvals out at 15.3%, versus expected 0.9%, prior -2.7%

Upcoming Events:

• GBP Halifax HPI m/m (5th-8th)
• GBP Construction PMI (0930GMT)
• EUR Retail Sales m/m (1000GMT)
• USD ADP-Non Farm Employment Change (1315GMT)
• USD ISM Non-Manufacturing PMI (1500GMT)
• NZD Employment Rate (2345GMT)

Market Commentary:

European markets tumbled yesterday, led by a sharp decline in Spain, shaking investor confidence and sending the Euro to a new one-year low against the U.S Dollar. The 16-nation single currency hit $1.29646, as concerns grew that the EU-IMF €110 billion aid package for Greece will fail to contain the region’s debt crisis.

The Euro-Zone governments and the IMF had hoped that this bailout package would sooth investor’s worries over high levels of sovereign-debt levels in Spain, Italy, Portugal and Ireland. Instead it had the opposite effect –the fear of “contagion” rapidly spreading throughout the day as markets remained unconvinced that the package will restore Greece’s solvency.

The 16-nation single currency fell for a third day in a row against the greenback as the EUR closed at $1.29646, down 1.76% from the day’s opening price.

The Euro traded near an eight-month low versus the British pound as bond yields from Spain to Portugal and Ireland rose yesterday on speculation the crisis that began in Greece is spreading. The EUR/GBP hit a low of 0.85643 as yields on 10-year Greek bonds rose 90 basis points to 9.40% yesterday. The rate on similar-maturity debt in Spain climbed nine basis points to 4.13% and Portuguese yields advanced 35 basis points to 5.48%.

German Chancellor Angela Merkel will speak to parliament today on the bailout after her coalition said that allowing the “orderly” default of region members burdened with debt may avoid a repeat of the Greek crisis. In Greece, unions plan their third general strike of the year today after workers yesterday occupied the Acropolis and shut down schools and hospitals at the start of a 48-hour walk-out.

The U.S dollar advanced toward an eight-month high against the Japanese Yen on optimism the U.S. economy will recover at a faster pace than Japan’s. This morning the greenback continued its rally versus the Yen, touching on a high of 94.896 this morning, before the U.S report today that economists said will show companies added jobs in April and service industries expanded at the fastest pace in almost five years.

This afternoon, the ADP Non-Farm Employment Change will be released. Economists predict that the ADP will show that companies hired 29,000 workers last month, a substantial improvement over a 23,000 decline in March. This ADP figure is widely considered a predictive index for Friday’s high anticipated Non-Farm payrolls. Later in the US, The Institute for Supply Management Non-Manufacturing PMI measuring the Level of a diffusion index based on surveyed purchasing managers, excluding the manufacturing industry is expected to rise from 55.4 points to 56.2- another positive indicator for the U.S. market.

Yesterday, the U.S Dollar received a boost as reports showed an unexpected increase in both the housing and manufacturing sectors. A report, showing that more Americans signed contracts in March to buy previously owned homes before the expiration of a tax credit, has helped support the housing market. According the National Association of Realtors pending home sales increased an unexpected 5.3%, after rising 8.3% in February. The housing market, which triggered the worst recession since the Great Depression, has received a boost from a tax incentive of as much as $8,000 for buyers who signed the contracts by the end of April. Job gains are needed to help sustain demand and limit foreclosures in the absence of government aid, broadening the economic recovery.

Meanwhile orders placed with U.S. factories unexpectedly rose in March, propelled by demand for business equipment and petroleum, signaling the economic expansion gained speed at the end of the first quarter. The 1.3% increase in bookings matched the prior month’s gain, which was more than twice as large as previously estimated, the Commerce Department yesterday. Sales rose 2.2%, the most since November 2007.

In The U.K. the pound strengthened against its most-active counterparts as polls show David Cameron’s Conservative Party may come closest to winning tomorrow’s election. Yesterday the GBP/USD hit $1.51047, its lowest level since March 31st. The pair lost 0.79% yesterday to close at 1.52472, but has managed to rebound in this morning’s trading session to touch on a high of 1.51640.

The U.K.’s manufacturing sector expanded at the fastest pace in 15-and-a-half years in April, boosted by a record high level of new export orders due to continuing sterling weakness, data showed yesterday. Markit and the Chartered Institute of Purchasing and Supply reported that the PMI for the manufacturing rose to 58.0 from March’s revised 57.3. Later today, the Markit will release the construction PMI. Last month, the construction sector posted unexpected figure of 53.1 – a jump above the all-important 50 point mark. Analysts expected that this construction figure to stay constant, increasing slightly to 53.5.

In Australia, home-building approvals rose in March at the fastest pace since 2002, a sign that housing demand hasn’t been damped by the central bank’s world- leading round of interest-rate increases. According the Bureau of Statistics the number of permits granted to build or renovate houses and apartments rose 15.3 %from February, when it previously dropped a revised 2.7%.

Yesterday, the RBA opted to increase the benchmark lending rate for the sixth time in seven meetings, pushing borrowing costs to what Governor Glenn Stevens referred to as “average” levels. The moves are partly aimed at preventing a property bubble after housing prices surged 20% in the 12 months through March. According to economists, this report is encouraging as it is a leading indicator for employment, particularly for workers in the construction industry.

After plunging 1.88% against the greenback yesterday, to close at 0.90930USD, the Aussie rose slightly this morning, toughing on a high of 0.91167USD.

Written by Finexo.com