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Greenback Gains on Risk Aversion Amid Falling Stocks and Weak US Consumer Confidence

Tue, Jun 30 2009, 23:05 GMT
by Nick Nasad

CMS Forex

EUR/USD - Greenback Gains on Risk Aversion Amid Falling Stocks

The Euro-Dollar pair advanced to set a high near 1.4150 overnight, but then fell to the 1.40 level in NY trading as the greenback strengthened on the back of risk aversion and quarter-end flows. The turnaround in sentiment came as equity markets in Europe and the US fell sharply lower and consumer confidence data from the US surprised heavily on the downside. That reawakened worries about risk and the outlook for the global economy.

EUR - Annual Inflation Dips into Negative Territory

In data from the Euro-zone, prices fell 0.1% in June, preliminary data showed. That is the first annual decline recorded since records began in 1996. The decline is led by the 50% decline in the price of oil in the past year, which lowers energy costs. The data does not suggest that the Euro-zone is headed for deflation as the dip into negative territory is likely temporary. However, soft inflation will keep the ECB from increasing interest rates.

UK - Housing Prices Rise Again in June

The UK meanwhile released its Nationwide house price index which showed prices up 0.9% on the month in June. That figure surprised forecasts on the upside and builds on the positive trend seen over the last several months. On the year prices were still down 9.3%, but it’s the first time since July 2008 that the annual decline has been in single digits.

UK - GDP Figures Revised Heavily Down

The final version of UK's 1st quarter GDP surprised markets on the downside, falling 2.4% compared to the preliminary and revised versions which saw growth contract at 1.9%. The new figure is the biggest contraction since 1958. One of the main reasons for the revision was a much bigger slump in construction, at -6.9%, than first reported.

GBP/USD - Pound Breaks Resistance, Then Falls Back into Range

The Pound-Dollar pair had a very volatile session in today’s trading as it breached the resistance level that has held most of this month, pushing up the 1.6742 an 8-month high. The Pound reached its high in the wake of its housing prices data, but retreated after the disappointing revision to its first-quarter GDP. From its high, the pair slid nearly 300 pips to set a low back inside its sideways range around 1.6420.

EUR/GBP - Pound Weakend by GDP Data and Falling Stocks

The weak GDP data pressured the Pound against the Euro. From a one week low near 0.8435 at the start of the European session, the Euro-Pound pair reversed its fall and rose to post a new high for this week at 0.8535, a 100 pip rally.

US - Housing Prices Improve Though Still Heavily Negative

Turning to US data, housing prices in the US in 20-metropolitan areas as measured by Standard & Poor’s were down -18.1% on the year. Though that remains deep in negative territory it is an improvement on the March’s data.

US - Consuemr Confidence Unexpectedly Flaters

A second release from the US showed consumer confidence unexpectedly sliding. The Conference board index fell to 49.3 for the June period from 54.8 in May, sharply undershooting forecasts. Both the present situation and future expectations sub gauges fell. The release helped to intensify the risk aversion in NY trading, which boosted the greenback.

USD/JPY - Greenback Strength Extends To Gains vs Yen

Stocks in Europe and the US were down sharply today, which as we’ve mentioned before boosted the prospects of the greenback. The Dollar-Yen pair was caught up in the general greenback strength following a 90 pip slide to the 95.30 area in overnight trading. Today’s high retests the levels seen last Thursday.

USD/CAD - Greenback Tests Last Week's High

The Greenback also retested its high from last Thursday against the Canadian Dollar. Most of the rally came in the NY morning session, as the consumer confidence data from the US soured the mood of any risk appetite, which had been pushing the pair down to the 1.15 level. Oil prices fell below the $70 a barrel level. Data from Canada was also weak.

CAN - GDP Down Again in April, Producer Prices Fall Sharply

Canadian GDP contracted 0.1% on the month in April following a 0.3% decrease in March and a 0.1% drop in February. Declines in manufacturing, the energy sector and retail trade were the main contributors to the April decrease. A second release showed producer prices down 1.1% in May, a decrease that was larger than expected. The main reason for the decrease was the appreciation of the Canadian Dollar against the greenback.

Upcoming Releases

Tonight, Japan posts its Tankan manufacturing index, an important quarterly measure of both the manufacturing and services sectors. Australia meanwhile, releases its manufacturing PMI, its retail sales, and building approvals. Overnight, Germany posts its retail sales, both the Euro-zone and the UK post manufacturing PMI data, and the UK also reveals its Halifax measure of housing prices.

Tomorrow, the US unveils its ADP employment change, the ISM Manufacturing index, a measure of pending home sales and data on construction spending.

Published on  Tue, Jun 30 2009, 23:08 GMT