Risk Aversion Back in Forefront, Yen and Greenback Climb to End Week

Daily Forex Fundamentals |  Written by CMS Forex |  May 16 09 04:55 GMT |

JPN Core Machinery Orders Fall 1.3%   We begin in Japan, where orders for machinery and equipment used in factories fell 1.3% in March, following a downwardly revised 0.6% gain in February. The implication is that Japanese firms do not want to spend on investment until they see a recovery in the economy. JPN Corporate Goods Prices Index Down 3.8% on the Year in April Prices that companies pay for energy and raw materials were down 3.8% in April compared to a year ago, a figure that was lower than expected, and the sharpest drop in nearly 22 years. The index which had been as high as 7.1% in August, has now slid into disinflation territory, which is worrying policy makers at the Bank of Japan who want to keep the economy from falling into deflation. AUD/JPY - Aussie Falls as Risk Aversion Returns   Stocks were up in Tokyo, but slid in London and the US, increasing a sense of risk aversion among investors, which helped the Yen reclaim its losses from yesterday's session. The Aussie-Yen, which is sensitive to investor sentiment and commodity markets, tumbled back to its low from Thursday near the 71 level, a 200 pip decrease from its open. The pair bounced down off a downward sloping line of resistance set up this week. EUR Euro-zone Economy Shrinks 2.5% in 1st Quarter   The Euro-zone economy contracted by 2.5% in the 1st quarter, the sharpest drop in at least 13 years. Companies have scaled back production and have cut jobs in an attempt to survive the worst slump in nearly six decades. The decline was sharper than expected. Germany which also put out its 1st quarter GDP data today saw its economy shrink 3.8%, a figure that was weaker than expected. Italy's GDP fell by 2.4%, and France saw a decline of 1.2%. Compared to a year ago, the Euro-zone economy contracted 4.6%, also the biggest decline since the Euro-zone came into being. EUR/USD - Euro Slides on GDP Data and Weaker Stocks   The Euro-Dollar pair fell in favor of the greenback on the back of higher risk aversion and the poorer than expected Germany and Euro-zone GDP releases. The pair slid about 200 pips, pausing to counter rally shortly at the start of NY trading. This week has seen the Euro rally that begin in the middle of April stall and reverse. The pair has some way to fall if the same sentiments pushing greenback strength continue next week. EUR/GBP - Euro Breaks Down From Recent Formation   The Euro slid against the Pound as well, breaking to a new low for the week at the 0.8880 level. The pair had been consolidating most of the week in a triangle patter, which was broken in today's trading. There was no fundamental news from the UK today, but stocks there did increase helping it to climbing against the Euro, though it fell against the Dollar. EUR/CHF - Euro Jumps vs Franc, SNB Intervention?   In a look at a final Euro pair, the Euro-Swiss Franc showed interesting price action considering the Euro was pressured everywhere else. After falling to set a low just below the 1.50 level, the pair surged at the start of NY trading to the 1.5150 level, a climb of 135 from low to high. Since its well known that the Swiss central bank authorities do now want to see their currency appreciate against the Euro, it's a good chance that today's action was caused by central bank intervention. US Consumer Prices Flat in April, Core Prices Rise   Now let's turn to the US, which had several releases on tap. Consumer inflation was flat in April though the core rate surprised forecasts climbing 0.3%. Energy costs were down 2.4%, while food prices fell 0.2%. Compared to a year ago, headline prices fell 0.7%, the biggest decline since 1955. However, just as in the monthly figures, the core rate increased to 1.9% compared to the 1.8% seen in March. US Empire Manufacturing Index Improves More Than Expected   The NY Fed Empire manufacturing index improved more than expected in May, climbing to 04.5 from April's -14.7. Though conditions are still in negative territory, the index is now at its highest level since last August. US Industrial Production Down 0.5% in April   Industrial output fell 0.5% in April, which was the slowest pace of decline in six months. It's a sign that the manufacturing sector is perhaps seeing a bottom, as companies cut stockpiles at the fastest pace on record in the first three months of the year, and may be ready to start placing orders again. The amount of factories in use dropped to a record low of 69.1%, though that figure was slightly above the forecast. The fall in April was led by weaker demand for business equipment such as computers, and construction materials. US Demand for US Long Term Assets Rises in March   International demand for long-term US financial assets rose in March, with China adding to its portfolio of Treasury securities. The total net purchases of long-term equities, notes and bonds rose $55.8 billion, which was larger than in February, and beat expectations. US securities are benefiting from the flight to safety by investors and their search for a safe haven. US UMich Consumer Confidence Keeps Climbing   Consumer confidence continued to increase in May, the preliminary version of the UMich consumer sentiment showed. Though the current index decreased compared to its April reading, the future expectations gauge continued to climb. That means consumers are more optimistic about the future even if currently their finances are still strained. USD/JPY - Yen Slides to 94.75 on Risk Aversion   The Dollar-Yen after trading near 96.15 to start the session, slid to the 94.75 level in NY trading. The pair slid in European trading following the weak GDP data from the Euro-zone which increased risk aversion. At the NY open, US stocks rose initially, but then faltered with some economists saying that stocks will consolidate following almost two months of gains. USD/CAD - Greenback Climbs as US Stock Rally at Open Reverses   The boost in US stocks pushed the US Dollar-Canadian Dollar to a low near 1.1650, but that move was reversed quickly as stocks gave up their gains. The pair breached its high from yesterday and tested the area just above 1.18. The Loonie was flying high when sentiment was pointing to an easing of the global recession, but this week that optimism wavered and the greenback has gained 200 pips since the piar fell to the 1.15 level on Monday. CAN Manufactring Sales Decrease 2.7% in March   Canada's manufacturing sales decreased 2.7% in March, reversing February's gain. Durable goods industries such as aerospace parts and products, motor vehicle parts, and primary metal products were behind most of the losses in March. Next Week's Key Releases   Next week the fundamental docket for the US is rather light, with FOMC minutes and data on building permits and starts the main releases to keep an eye on. Other important data includes inflation and retail sales figures from the UK and the ZEW economic sentiment reports from Germany and the Euro-zone. Capital Market Services, L.L.C. www.cmsfx.com