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Euro, British Pound May Advance as Risky Assets Resume Rebound

Euro, British Pound May Advance as Risky Assets Resume Rebound

2010-05-26 05:09:00
Ilya Spivak, Sr. Currency Strategist
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Key Overnight Developments

• Australian Economy to Triple Average Growth Rate, Says Westpac
Euro, British Pound Correct Lower vs US Dollar in Overnight Trade

Critical Levels

euroopen052620101

The Euro and the British Pound corrected lower in Asian trade, down 0.4 and 0.2 percent respectively against the US Dollar as markets digested the NY-session rally across the spectrum of risky assets set off by a better-than-expected US consumer confidence reading from the Conference Board. We remain short EURUSD at 1.4881.

Asia Session Highlights

euroopen052620102

Australia’s Westpac Leading Index added 0.9 percent in March – the most in four months – while the annualized growth rate surged to 8.7 percent, the fastest since 1997. The outcome suggests the economy will expand at nearly three times its historical trend growth rate over the next 3-9 months, seemingly bolstering the case for further interest rate hikes to contain inflationary pressure that goes hand-in-hand with buoyant growth. However, Westpac chief economist Bill Evans cautioned that while the outcome is “certainly signaling better times for the Australian economy,” it is based on March data that doesn’t take into account “the deterioration in economic conditions in April and May, [which] can be expected to make a considerable correction to the leading index over the next few months.” Indeed, markets appear convinced that a hawkish RBA is now off the table, with a Credit Suisse gauge of priced in policy expectations showing traders betting on no more rate hikes for the next 12 months.


Euro Session: What to Expect

euroopen052620103

The economic calendar looks fairly tame in European hours. Germany’s GfK Consumer Confidence gauge is seen forecasting a decline in sentiment in June, snapping a two-month winning streak. The outcome seems hardly surprising given rampant concerns that bailing out spendthrift southern EU economies will amount to swelling debt burdens for bastions of European fiscal prudence such as Germany, driving up borrowing costs and snuffing economic growth.

Meanwhile, the British Bankers Association is expected to reveal that UK Loans for House Purchases rose to 37,000 in April, marking the largest monthly increase since November 2009. That said, the outcome may not produce too much of a splash after a more timely May housing market survey from Rightmove Plc pointed to downward pressure on property values amid an increasingly shrinking number of willing buyers, hinting that April’s apparent upswing in demand may not prove sustainable.

Turning to risk sentiment, US equity index futures are trading firmly higher ahead of the opening bell in Europe, up 0.4 percent and hinting that most major currencies may track higher against the safety-linked US Dollar and Japanese Yen after a downward correction in Asian trade.


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