USD Pares Gains as Appetite Returns, Ezone Orders Mixed

http://www.ashraflaidi.com/forex-news/?a=2403

May 24, 2011 09:24 ET : Trading during the London session has been calm with most currencies slightly higher against the USD amid sentiment improvement. Latest data from EZ was mixed, market awaits US housing data.

German final GDP q/q came out as expected at 1.5% and German Ifo Business Climate for May was unchanged at 114.2, slightly higher than
expected 113.9. Klaus Abberger, Ifos economist, was quoted that
recent high euro volatility is a problem for German firms because it
makes it more expensive for companies to hedge their FX exposure.

EZ Industrial New Orders for May declined sharply from previous +0.5
to -1.8%. Data has been progressively worsening over the past quarter
which could be attributed to strong Euro seen from January to end of
April. Lower orders and comments about extra expense German firms have
to make when hedging could predict future weakness.

Euro has ignored these numbers and continued higher. After a brief
consolidation and return below the 1.41 news that the Greek opposition
leader Samaras rejected the austerity plan came out. Even though that
is not a surprising development, it could prevent further euro
appreciation.

In the UK, Public Sector Net Borrowing was lower at 7.7B from previous
15.6B. Analysts however expected borrowing to reach only 5B. Sterling
has not reacted to higher deficit news.

US data will be limited to New Home Sales and Richmond Manufacturing
Index both released at 10:00 am EDT. Over the past year, New Homes
Sales have stabilized but they still hover near decade lows. New Home
Sales is expected to increase slightly from 300K to 305K. Analysts see
Richmond Manufacturing Index that has been declining the past three
months unchanged at 10. Unless this reading surprises significantly,
the impact on the FX market should be limited.

Despite the stabilization that the housing market experienced over the
past year, situation continues to be dire. Given the importance of the
housing market on consumers confidence, there cannot be any serious
discussion about an improvement of the economy as a whole unless we
see significant multi-month improvement in the housing market.

Patrik Urban