FOREX summary

[reky]

Forex
Source - Thomson Financial News

Dollar steady ahead of US data

LONDON - The dollar is steady ahead of this afternoon's US data at the end of a week in which there were no major surprises from the world's leading central banks.

US retail sales and producer price data will be in focus this afternoon, with the pound/dollar cross likely to be in the spotlight following yesterday's decision by the Bank of England to only increase its key repo rate by a quarter point to 5.50 pct. The pound fell as some sections of the market had expected a bigger increase.

The retail sales news will be particularly interesting after poor trading updates yesterday from individual US retailers, such as Wal-Mart Stores, JC Penney and Federated Department Stores.

"We saw a run of bad numbers from the US retailers yesterday, so assuming this is reflected in today's readings, the pound may end up finding its floor against the dollar in the not too distant future," said David Jones, chief markets analyst at CMC Markets.

Analysts polled by Thomson Financial News expect retail sales to have risen 0.3 pct in April after rising 0.7 pct in the prior month, while sales excluding autos are seen rising 0.4 pct in the month, after having risen 0.8 pct.

The producer price data will also be important given the US Federal Reserve's concerns over pipeline inflationary pressures.

The dollar has also been supported by comments from US President George Bush and US Treasury Secretary Henry Paulson. The latter said that a strong dollar was in his nation's interest, while Bush issued a statement that said he would attempt to lower trade barriers to attract foreign investment.

Elsewhere, the yen remained firm on fears that carry trades will be unwound in the wake of sharp falls on US and Asian stock exchanges overnight.

London 1220 BST London 0915 BST


US dollar
yen 119.85 down from 119.86
sfr 1.2189 down from 1.2191

Euro
usd 1.3481 up from 1.3478
yen 161.63 up from 161.59
sfr 1.6436 down from 1.6437
stg 0.6814 down from 0.6815

Sterling
usd 1.9782 up from 1.9773
yen 237.15 up from 236.99
sfr 2.4110 up from 2.4109

Australian dollar
usd 0.8295 up from 0.8286
yen 99.44 up from 99.34
stg 0.4193 up from 0.4189

[dude_89]

Early Tuesday, the euro was trading at $1.3556 from $1.3543 late Monday, while the dollar was at Y120.49 from Y120.37, according to EBS. The euro was at Y163.35 compared with Y163.06 late Monday. The dollar was at CHF1.2190 compared with CHF1.2191, while the U.K. pound traded at $1.9787 from $1.9785 late Monday.

[dude_89]

Next up for currency investors to digest is the 9 a.m. EDT (1300 GMT) release of the March report from the Treasury International Capital system, which shows net foreign purchase of U.S. securities.
The capital flows data help investors gauge whether foreign purchases of U.S. debt are sufficient to finance the huge trade deficit, and are sometimes used as a springboard for buying or selling of the dollar.
But last month, the dollar showed little reaction to the report, despite a sharp drop in February from January

[TheRock]

The dollar fell against most key currencies in light pre-holiday trading Friday after a report showed US existinghome sales fell more than expected, dimming hopes for a quick recovery in the housing market. The yen reversed yesterday’s gains after stocks recovered and tension with North Korea increased. The US will be closed on Monday for Memorial Day.

[TheRock]

US & Canada
• US existing-home sales dropped more than expected in April to the lowest level in almost four years. Sales fell 2.6% to an annual rate of 5.99 million in April from 6.15 million in March, the National Association of Realtors said. Meanwhile the supply of homes for sale at the current sales pace rose to the highest since August 1992. Sales fell 10.7% y/y in April, about the same pace as March. The median price of an existing home fell 0.8% y/y in April to $220,900. It is still too early to call a bottom in the housing market.

Europe
• The German import prices increased 0.9% m/m in April on more expensive energy products, the Federal Statistical Office reported. Energy prices rose 3.9% m/m.


• UK Q1 GDP growth rose 0.8% q/q and 2.9% y/y. The report indicates strong inflationary pressures as the GDP deflator rising to 3.2% y/y, the highest since Q4 2003, according to the National Statistics.

Asia-Pacific
• Japan’s core consumer prices fell at a slower pace in April. Core prices, which exclude fresh food, declined 0.1% y/y, the Statistics Bureau said. The Tokyo area core prices for May were unchanged y/y. The numbers are benign, likely keeping the Bank of Japan on hold until the mid-summer.

• The yuan is not the cause of the US trade deficit and a large appreciation would hurt China’s economy, Vice Premier Wu Yi said, signaling China will not cave in to demands for faster gains. “China will continue to reform its exchange rate on its own initiative, gradually,” Wu said.

[TheRock]

All Indicators Point to Continued Weakness in Market for Existing Homes



Northern Trust

Sales of existing homes fell 2.6% in April to annual rate of 5.99 million units, the lowest sales pace since June 2003. Sales of existing homes are down 16.9% from the peak established in June 2005.

Sales of single-family existing homes dropped 2.43% in April to an annual rate of 5.22 million units, down 17.1% from the peak reading of 6.30 million established in September 2005. Sales of existing homes fell in all regions of the nations, with the largest drop recorded in the Northeast (-8.8%). Sales of both existing and new homes have declined in April, taking the combined demand for homes to an annual rate of 6.201 million units, which is 18.6% below the peak of 7.619 million of July 2005. Combined sales pace of new and existing homes were nearly steady in April (6.201 million) vs. a March reading of (6.194 million).

The median price of a single-family existing home dropped 0.9% from a year ago to $220,500. The April decline in the median price of single-family existing home is the ninth straight monthly decline.

There was a sharp increase in the number of homes unsold in the existing home market to an 8.4-month supply in April compared with a 7.4-month supply in the prior month. Additional price declines and/or a postponement of sales are the possibilities of working off these large inventories.

[TheRock]

Yen Slumped vs Dollar
The yen slumped sharply against the dollar from 120.80 to 121.75, confirming a strong upward trend. The dollar/yen faces a major resistance at 122.20. If it fails to test this level, the pair is likely to fall back to around 120.80.

USDJPY encounters interim resistance at 121.80, backed by 122 and 122.20. Subsequent ceilings will emerge at 122.50, followed by 122.80 and 123. On the downside, support begins at 121.50 and 121, followed by 120.80. Additional floors are eyed at 120.50, backed by 120.20 and 120.

[TheRock]

KUALA LUMPUR (AP)--The Malaysian ringgit's strength against the U.S. dollar and Japanese yen was not a concern as it remains largely steady against regional currencies, the deputy finance minister said Sunday.



The ringgit reached a nine-year high of 3.38 against the U.S. dollar on Tuesday due to aggressive buying by dealers after Asian currencies rose in reaction to China's decision to widen the yuan's trading band.



"At this point of time, we do not have any problem" with the ringgit's valuation, Second Finance Minister Nor Mohamed Yakcop was quoted as saying by national news agency Bernama.



He said that in terms of the cross-rate between the ringgit and other regional currencies, the ringgit has not strengthened and has even "slightly weakened" against some currencies.



"So, it is only the dollar and yen that have weakened, so it is not really a case of the ringgit that has become too strong," he was quoted as saying.



Nor Mohamed said the ringgit's performance is in line with other currencies that have also strengthened against the U.S. dollar.



"We also must remember that the flow is two-way, as people both buy and sell the ringgit, so this is reflected in the movement of the unit," he said.



The ringgit has strengthened 9.5% since its link to the dollar was cut in July 2005, freeing it from a government enforced level of 3.8 to the dollar imposed during the 1997-98 Asian financial crisis.



Most traders expect the dollar to fall further against the ringgit in the coming months due to expectations that Malaysia's economy will grow fairly briskly and speculation that its currency is undervalued.



Thus far this year, the dollar has declined 4% against the ringgit and analysts polled last month tipped the U.S. currency at an average 3.3700 ringgit by end-December.

[TheRock]

The economics consultancy, headed up by Roger Bootle, had previously foreseen a gentle slowdown. But it now reckons that “the commercial property market is no longer likely to avoid meaningful falls in capital values over the next few years.” The group thinks prices will fall by 4%-6% in both 2008 and 2009, with further falls in 2010, meaning that, over those three years “total returns at the all [commercial] property level will be approximately 0%.”

CE has always tended towards the bearish side on residential property, but this is the first time it has come out negative on the commercial side.

So what made the group change its mind?

It seems that David Blanchflower, hitherto the most ‘dovish’ member of the Monetary Policy Committee, has finally alerted the City to the dangers of inflation.

Blanchflower has voted against all three previous hikes, and actually voted for a cut in March. But the minutes for May’s rate-setting meeting showed that the entire MPC voted for the quarter point rise to 5.5%. And a few even considered a half-point hike, as yet unseen in the MPC’s entire ten-year history.

The minutes prompted interest rate outlook upgrades across the Square Mile, with most analysts now expecting a further rate rise as early as next month. Capital Economics - who not so long ago expected rates to be falling rather than rising - declared that interest rates will reach 6% in August.

And if rates go up to 6%, that makes the yield on commercial property - already below the 10-year gilt yield, also known as the risk-free rate - look appallingly low. Why put money into a risky and cyclical asset class like commercial property, if you can get a better return for less risk by putting it into Government bonds?

So that means property yields have to rise, or gilt yields have to fall. With interest rates rising, gilt yields won’t be going anywhere but up - so the property yields have to rise to match. And for property yields to rise, you either need higher rents, or falling capital values, or both - and the most likely outcome is falling prices, as investors start to realise that commercial property simply isn’t worth the risk anymore.

We’ve consistently said that everyone has been underestimating inflationary pressures and the likely impact on interest rates. And we reckon they still are. As James Ferguson keeps pointing out, the last time inflation was this high, the Bank of England reckoned that interest rates of closer to 8% were more appropriate.

But despite the warier mood in the City, plenty of commentators and analysts are still sceptical about the ability of food and energy prices to stay high, and thus there's still that sneaking suspicion that inflation must surely come down at some point - it‘s just a matter of staying calm and holding on tight.

But by now it should be clear that this is simply deluded wishful thinking. Oil prices are still floating around $70 a barrel (about 30% up on the start of the year). The majority of pundits and certainly the Bank of England had expected a fall by now, perhaps to around $40 a barrel. But oil just won’t co-operate.

Then there’s food. Rising costs here are beginning to make themselves felt. Already annual food price inflation in the UK is at its highest level - 6% - in nearly six years. US chocolate giant Hershey cut its 2007 profit forecasts this month because of rising milk prices, says the FT; while Nestle has told investors that it will “not be able to cope with higher milk costs simply by raising prices.”

John Parker, a food analyst at Deutsche Bank, told the FT: “There is growing concern within the food industry that the present upswing in soft commodity prices is structural rather than cyclical.”

In other words, this rise is here to stay - it’s not just going to go away if we simply cross our fingers and pretend it’s not a problem, as most people have been doing with oil prices for the past three years or so.