USD Pares Gains as Appetite Returns, Ezone Orders Mixed

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.

Patrick Urban