US Dollar Loses Strength On Record Deficit,EU Leaders Scrap Treaty Ratification Deadline,Japanese Co-Incident Index Offers...

... Brightside Optimism

US Dollar
Exacerbating yesterday's disappointing Philadelphia Fed index release, an ever
ballooning current account balance led traders to flip long dollar positions in
favor for euro entries. Expected to widen to $190 billion, the deficit increased to
$195.1 billion in the first three months of the year. Worse than $188.4 billion in
Q4, the report cited the US consumer's founded penchant for foreign imports as the
culprit. As a result, residing at record levels, concerns over the financing
capabilities of the deficit were sparked. Currently, meeting the required $2
billion financing, any considerable selling on the part of foreign interest may
create an extremely difficult environment for the US dollar, as participants seek
higher rates of return elsewhere. Although some may consider the widening deficit a
testament to the strength of the US economy, as the individual is more willing to
consume, the risk remains that the wider deficit may erode and adversely affect
overall output as imports outweigh exports. Additionally, higher oil prices
negatively affected exporters as rising costs hampered global foreign demand and a
greenback appreciation deterred overseas consumers. On a more brighter note,
consumer confidence was stronger in the world's largest economy as the University of
Michigan sentiment read a 94.8 reading, compared with consensus figures of 88.8.
Considerably higher than the 86.9 print in the previous month, the report suggests
that the American consumer may return as employment prospects have risen and better
economic expectations have mounted.

Euro
In light of budgetary concerns still fresh on the minds of the market, traders took
to the euro zone currency as definitive improvement in output was released. Aside
from in line German producer price figures and a historical low for the French
current account deficit for April, economists were surprised as industrial
production skyrocketed in the region. Estimated to rise a paltry 0.1 percent in the
month over month comparison, actual output rose 0.6 percent higher, besting the 0.2
percent decline in March. On an annualized basis, the figure vaulted 0.9 percent
higher. The best level since January, the new figures lend some optimism to the
region and may confirm the validity of widely criticized policies by central
bankers. Separately, European leaders elected to scrap the 2006 treaty ratification
deadline as government heads admitted that the current state has lost touch with the
public. The hope is that this will allow ample time for a reconstruction of the
project as well as the faith of the constituency. No new deadline has been
established. However, this "good faith" gesture may lead to a time of crisis if the
new seven-year budget is additionally abandoned. With both France and Great Britain
unlikely to soften their positions any time soon, political concerns may add to near
term uncertainty and ultimately mounting bearish sentiment.

British Pound
Considering absolutely no economic data for the day, market participants took the
opportunity to force the cable higher, briefly hitting the 1.8300 figure. With that
said, market participants will look to key economic figures next week in either
furthering the current strength or allowing a reinvigorated bearish tone to enter
the foray. Relatively lacking in major figures next week, the players will focus on
the Rightmove house prices report for the month of June. Already established to be
softer, the report offers further insight in housing market conditions as it teeters
between a potential collapse and optimistic resurgence. Additionally, the Bank of
England minutes are scheduled for release with many traders anticipating the
components of the ultimately decision by policy makers last week. Although notable
mentions on the decline in the housing market and both industrial and manufacturing
output have been accepted, analysts will be scouring any further mention of the
consumer credit considerations mentioned in the last batch of minutes.

Japanese Yen
Positive data contributed to further Japanese yen strength today as both economic
figures lent optimism to an otherwise tepid economy. As expected, the leading
economic index for April posted a final 31.8 percent reading for the month. Higher
compared to the 25 percent print from the previous period, the leading report still
sheds a lackluster expectation of future conditions. However, with the leading
indicator report regarded as a simple compilation of previous releases, anticipation
was relatively low for any deviation from the consensus estimate. As a result, the
session's focus was solely placed on the April co-incident index. Expected to
decline to 40 percent from the previous 44 percent reading, the actual release
crushed estimates and pointed higher. Also a compendium of economic factors, the 50
percent reading offers hope to the land of the rising sun, as the figure is
suggestive of expansionary conditions. However, with the overall dour data and
remaining deflationary concerns, further concrete evidence may be required in
turning the tide.