Greenback Slumps on Equity Rally

by Korman Tam

The greenback relinquished gains against the euro and Aussie on the Tuesday session as UK and US markets returned from holiday. The US equity bourses lauded earlier upbeat economic reports, with a sharp unexpected rise in the Conference Board’s May consumer confidence survey to its highest level in 8 months at 54.9, versus a revised 40.8 a month earlier – triggering a sharp rally in the Nasdaq, up 3.45% and the Dow Jones, advancing by over 2.5%. The Richmond Fed manufacturing survey reversed some of its previous month’s declines, as the composite index edged up to 4 in May versus -9 in April, while the manufacturing shipments component improved to 9 from -3 and the services index held steady at -29.

However, not all the reports were positive, with the S&P Case-Shiller home price survey reinforcing current downward pressure on the housing market. The S&P Case-Shiller index in March slumped by 2.2% on a monthly basis and plunged by 18.7% on an annualized basis.
Euro Recovers on Shift to Risk

The euro slid overnight against the greenback, tumbling to 1.3860 initially following further dismal economic data from the Eurozone. However, the single currency regained its footing in the New York session on the heels of an equity rally prompted by US data, sending the euro back toward the 1.40-handle.

Germany’s GDP plunged in Q1, marking its steepest drop on record with economic activity posting a 3.8% quarterly decline versus a revised 2.2% contraction in the previous quarter, while tumbling by 6.8% on an annualized basis compared with a 1.7% contraction a year earlier. A breakdown of Germany’s growth figures revealed a decline of 9.7% in exports and a loss of 5.4% in imports, while gross capital investment fell by 7.9% and private consumption increased by 0.5%.

Economic reports from the Eurozone were also disappointing, with industrial orders deteriorating further in March with a 0.8% decline versus a revised 0.0% reading in the previous month. On an annualized basis, industrial orders fell by 26.9%, versus an upwardly revised 34.2% figure a year earlier. The seasonally adjusted March current account deficit improved by more than expected, shrinking to 6.5 billion euros from 7.8 billion euros previously.

EURUSD hovers just beneath the 1.40-level, with support seen at 1.3960, followed by 1.3930 and 1.39. Additional floors will emerge at 1.3860, backed by 1.3820 and 1.38. On the upside, interim resistance starts at 1.40, followed by 1.4020 and 1.4050. Subsequent ceilings are eyed at 1.4080, backed by 1.41 and 1.4140.