Dollar Ends the Week Lower Following Oil Spike and UMich Consumer Confidence

JPN GDP for 1st Quarter Surprises on Upside

Japan's economy was up 0.8% in the 1st quarter and 3.3% in annual terms. The results were better than forecast, and were led primarily by exports to Asia and emerging markets such as Russia and countries in the Middle East.

JPN Production Down 3.4% In March, Confidence Falls to 35.2

The final version of Japanese industrial production for March showed a slightly larger decline in output than the preliminary release showed two weeks ago. On the month production was down 3.4% compared to the original estimate of a 3.1% drop. This follows an increase of 1.6% in February.

In a third release from Japan, consumer confidence continued to decline, falling to 35.2, a fresh 5-year low. The measures for the employment situation, wages and willingness to buy big ticket items all decreased.

NZ Producer Prices Higher Than Expected

In New Zealand, producer prices for the 1st quarter came in higher than expected. Inputs to the production process rose 2.3% on higher energy costs. Output prices grew 1.8% with dairy products leading the way.

NZD/USD - Kiwi Rallies 200 Pips to Finish Week

The New Zealand Dollar rallied almost 200 pips against the US Dollar from yesterday's low. The PPI helped the second leg of this rally in European trading and then the Kiwi extended its gains in NY trading. As the NY session progressed, the combination of oil prices spiking to a new record high and weaker consumer confidence data caused a general sense of US dollar weakness.

EUR Trade Balance Turns Into Deficit in March, Exports Decline

The trade balance in the Euro-zone, seasonally adjusted, swung to a deficit of 2.4B euros compared to February's 1.6B surplus. Import growth was flat while exports declined 2.9%. The rise of the Euro to new record highs made European goods more expensive abroad.

US Housing Starts and Building Permits Surprise on Upside

Housing starts surprised on the upside for April, increasing to an annual pace of 1.03 million, an 8.2% increase on the previous month. Looking closer at the data, starts of single-family homes fell to their fewest since January 1991, so the headline number was carried by an increase in apt buildings and condos. Building permits increased 4.9% in April compared to March, registering an annual pace of 978K.

US Consumer Confidence at 59.5, 28 Year Low

Consumer confidence fell again in May, dropping to 59.5 according to the preliminary Univ. of Michigan index. The fall was larger than economists had forecast, and put the indicator at its weakest level since June 1980. Both current conditions and future expectations registered declines, while inflation expectations increased.

EUR/USD - Euro Tests 1.56

The Euro-Dollar gained 130 pips after retesting support near 1.5450 at the start of the NY open. As oil rose above $127 a barrel and US stocks weakened, the Euro rallied and set a new intra-day high at 1.56.

USD/JPY - Yen Gains Sharply vs Dollar in NY Morning Trading

The Dollar slid 140 pips during the same period, falling to the 103.50 level. It pared the gains the Dollar managed on Tuesday. Continued weakness in consumer confidence translates to lower spending and company profits, and will likely extend the US slowdown.

USD/CAD - Loonie Breaks Below Parity on Surge in Oil

The Canadian Dollar used the record high oil prices to fall decidedly below the parity level vs. the greenback, continuing a downtrend in the pair we have seen all week. The US Dollar did recover to test the parity level in later NY trading.

AUD/USD- Aussie Test 0.9560 After Strong Two Sessions

The Australian Dollar- US Dollar pair is another pair ending the week stronger. The Aussie managed to rip off a 250 pip rally the last 2 sessions after finding support near 0.93. The Australian economy will get a boost from China's investments in domestic commodity-producing companies. As a result export demand will remain robust helping the Australian Dollar.

Next Week's Releases

Next week starts with housing prices from the UK, and ZEW economic sentiment numbers from Germany and the Euro-zone. On Monday the Reserve Bank of Australia releases its meeting minutes following by the bank of England on Tuesday.

Canada will have a busy week posting foreign flows, wholesale and retail sales numbers, and consumer prices. The US will post producer price data on Tuesday and FOMC meeting minutes on Wednesday.

Capital Market Services, L.L.C.
www.cmsfx.com

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