Risk aversion was the flavor of the NY session as US equities nearly gave up all of yesterday's stellar gains. The S&P closed below 900 and suggest a test of 880/875 support is now in the offing. The selling in risk helped buoy the US dollar on the follow. Economic data in the session was lackluster. The US existing home sales report was nothing to write home about as the details remained ominous. Inventories continued to worsen with the months' supply now at 10.2 from 9.6 prior and the highest since November to boot. Once again nearly half of the sales were in the ''distressed'' property space. Prices are running at a dismal -15.4% annual rate (worst since January) and are poised to head lower if continued employment losses force sellers to further capitulate on price. The report just throws cold water on the notion that the bottom in housing is upon us.

The bond market provided quite a spectacle into the latter part of the session. The run-up in the US 10-year yield to a high of 3.74% took the US rate above the comparable Eurozone measure for the first time since March – when EUR/USD was trading near 1.25/1.27. This "differential" had been very well correlated with the moves in EUR/USD since the financial crisis intensified in September. Higher yielding securities with commensurate risk to lower yielding ones will tend to attract more capital flows and thus the reason why currency movements tend to track this relationship. However, we have seen a decoupling between the EUR/USD and the 10-year yield differential since late last month. Return of this correlation would suggest a EUR/USD move closer to 1.25 in the medium term. As yields in the US become more attractive, we would expect capital flows to follow in earnest. Recent auctions suggest that the risk of the US not being able to fund its massive deficits is negligible at this point.

Upcoming Economic Data Releases (Asia Session) prior expected

  • 5/27 23:50 GMT JN  Large Retailers' Sales  APR  -8.10%  -6.80%
  • 5/27 23:50 GMT JN  Retail Trade YoY  APR  -3.90%  -3.30%
  • 5/27 23:50 GMT JN  Retail Trade MoM SA  APR  -1.10%  0.50%
  • 5/28 0:00 GMT AU  Conference Board Leading Index  MAR  0.20%  - -
  • 5/28 1:00 GMT AU  HIA New Home Sales (MoM)  APR  4.20%  - -
  • 5/28 1:10 GMT AU  RBA Deputy Governor Battellino Speaks in Sydney
  • 5/28 1:25 GMT UK  Bank of England's Tucker to Make Speech  28-May  
  • 5/28 1:30 GMT AU  Private Capital Expenditure  1Q  6.00%  -5.00%
  • 5/28 1:30 GMT AU  Construction Work Done  1Q  1.70%  -3.00%
  • 5/28 2:00 GMT NZ  Annual Budget  28-May  
  • 5/28 3:00 GMT NZ  Money Supply M3 YoY  APR  7.10%  - -