US Dollar Threatened With Stocks Poised to Rally in European Trade

Key Overnight Developments

• US Dollar Broadly Sold as Asian Stocks Follow Wall Street Higher
• Australia Posts First Trade Surplus in Two Years as Exports Surge
• Japan’s Corporate Spending, Profits Disappoint in the First Quarter

Critical Levels



The Euro and the British Pound rose against the US Dollar in overnight trading, adding 0.3 and 0.2 percent respectively as stocks followed Wall Street higher across Asian exchanges, sapping demand for the safety-linked greenback. We remain short EURUSD.

Asia Session Highlights



Australia’s Trade Balance unexpectedly posted the first surplus in a year in April as exports surged 10.7 percent from March, marking the biggest monthly increase in two years as robust Chinese demand pushed overseas sales of metal ores and minerals higher by a hefty 25 percent. The outlook going forward seems far from rosy however as China proactively moves to slow economic growth amid fears of asset bubbles and runaway inflation. Indeed, RBA governor Glenn Stevens alluded to as much earlier this week as the central bank kept rates on hold and signaled an end to its tightening campaign, saying economic growth in Asia “may need to moderate in the year ahead”.

Japanese Capital Spending fell 11.5 percent in the year through the first quarter, disappointing economists’ expectations for a narrower 9.6 percent decline. In quarterly terms, spending fell 2.6 percent, nearly tripling the 0.9 percent decline in the three months through December 2009. Corporate profits also proved lackluster, growing 10.9 percent as compared to an average gain of 34.8 percent over the previous three quarters. The outcome underscores cues noted in last week’s release of April’s labor market figures, hinting that firms are becoming reluctant about future demand amid concerns of a slowdown in China, the hitherto engine of a boom in overseas sales that had lifted the world’s second largest economy out of the worst recession since World War II in the second quarter of last year.

Euro Session: What to Expect



Risk sentiment looks likely to set the tone for currency markets in the coming session, with the US Dollar and Japanese Yen positioned to decline against the spectrum of their major counterparts as European equity index futures soar 2.3 percent ahead of the opening bell, sapping demand for the safety-linked currencies amid a broad-based recovery in risk appetite.

UK House Prices are expected to add 0.3 percent in May according to a survey from the Nationwide Building Society. In annual terms, prices are set to rise 9.6 percent, down from the previous month’s 10.5 percent increase. The outcome is unlikely to prove particularly market-moving however, with the downturn telegraphed two weeks ago in an analogous survey from Rightmove Plc, the UK’s largest online listing of for-sale properties.

Turning to the continent, Euro Zone Retail Sales are expected to shed 0.1 percent in April, the first decline in three months. The outcome follows another increase in the unemployment rate reported earlier this week, underscoring the precarious outlook for economic growth in the region.

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