Forex Commentaries

• The dollar reversed earlier losses against most major currencies late Thursday. Recent economic recovery signs indicate the US recession is nearing an end. The Conference Board US LEI rose the most since the end of the 2001 recession and the Philadelphia Fed manufacturing index jumped to the highest level in nine months. The 4-week average of US initial jobless claims declined 7K to 616K, the lowest level since mid- February. The European and commodity currencies, previously gaining on better economic news, only got a temporary lift from the improved economic outlook. Major currency pairs are at important technical levels and have been trading in relatively narrow ranges the last few weeks, which may be a prelude to a big move. US equity indexes, having been trading in a narrow range lately, rose for the first day in four. The S&P 500 rose 7.66 points to 918.37. The yen reversed yesterday’s gain. Sterling was pressured by lower-than-expected UK retail sales. The Swiss franc fell versus the dollar and euro after the EUR/CHF reached the 1.50 handle, which seems to be the SNB intervention area. The Australian dollar rose as the RBA confirmed it has been buying international reserves. The Canadian dollar was little changed after Canada’s consumer-price inflation rose more than expected.


• The EUR/USD fell after hitting resistance from the short-run downtrend and the 13-day moving average. The pair broke its short-term uptrend on June 8 and will likely test the 1.38 support again. If this support is broken, the EUR/USD may fall as low as 1.33. We are selling the pair with stop at 1.4235.

Financial and Economic News and Comments

US & Canada

• The Conference Board US leading economic indicators index, measuring future economic activity, rose a more-than-expected 1.2% in May after an upwardly revised 1.1% increase in April, LEI data from the Conference Board showed, signaling a US economic recovery is imminent. The coincident index, measuring current economic activity, was down 0.2%, following April’s downwardly revised 0.3% decline.

• US initial jobless claims in the week ending June 13 increased 3,000 to 608,000, after the previous week’s upward revision to 605,000, figures from the Labor Department showed. The 4-week average of new jobless claims declined 7,000 to 615,750, the lowest level since mid-February. Continuing jobless claims in the week ending June 6 dropped 148,000 to 6,687,000, the first weekly decrease since the January 3 week and largest since November 24, 2001, following the preceding week’s upward revision to 6,835,000. The insured unemployment rate declined to 5.0% for the week ending June 6 from the prior week’s 5.1%.


• The Philadelphia Fed manufacturing index climbed more than anticipated to -2.2 in June from -22.6 in May, indicating manufacturing in the Philadelphia region contracted at the slowest rate in nine months, according to the Federal Reserve Bank of Philadelphia’s June 2009 Business Outlook Survey. The new orders index improved to -4.8 from May’s -25.9. The shipments index rose to 2.1 from -19.0.

• Canada’s consumer prices rose a more-than-expected 0.7% m/m in May after declining 0.1% m/m in April, CPI data from Statistics Canada showed. The CPI unexpectedly increased 0.1% y/y, following April’s 0.4% y/y advance. The Bank of Canada core CPI was up 0.4% m/m and 2.0% y/y, both more than anticipated.

Europe

• UK retail sales unexpectedly declined 0.6% m/m in May, the first drop in three months, after a 0.9% m/m increase in April, according to data from the Office for National Statistics. Retail sales decreased a more-thanexpected 1.6% y/y, following April’s 2.6% y/y gain. The value of retail sales fell 1.1% y/y in May, the most since records began in 1988.


• The UK public sector had a current budget deficit of £17.5 billion and net borrowing of £19.9 billion in May, the ONS said.


• The Swiss National Bank kept its key interest rate unchanged at 0.25%, as forecast, saying it will continue to take “firm action” to prevent any appreciation of the franc.

Asia-Pacific

• The World Bank raised its growth forecast for China, predicting China’s economy will grow 7.2% y/y in 2009, up from a 6.5% y/y forecast in March.

FX Strategy Update