Dollar Plummets to Seven-Month Lows as Asian Equities Rally (Euro Open)

Overnight price action saw Dollar pairs slide to lows last seen in early November. Sterling rose to a high of 1.5979 while its Canadian counterpart rose to 1.1124 in mid-Asian trading. The Euro was confined to a tight 50 pip range as traders awaited the release of tomorrow’s German Consumer Price data. Many may be looking toward the downside of the surveyed figure after import prices unexpectedly fell in the month prior.

[U][B]Key Overnight Developments[/B][/U]

[B]• Dollar Pairs Hit Seven-Month Lows
• Japanese Merchandise Trade Deficit Shrinks by 46%
• Hong Kong Stocks Surge 4.30%

Critical Levels[/B][/U]

[B]Sterling[/B] hit a seven month high against the [B]U.S. Dollar[/B] as stocks in Hong Kong surged 4.30%, allowing a reversion to risk-appetite that has continued to hurt the greenback. The [B]Euro[/B] lost a bit of traction against it’s American counterpart, allowing scalpers to have swings in price action that were confined to a 50 pip range.

[B]Asia Session Highlights[/B][/U]

Japan’s [B]Adjusted Merchandise Trade Deficit[/B] shrank in the 12 months through the end of April, contracting from -97.1 billion Yen to -52.2 billion Yen as yearly exports fell at a slower pace. In fact, exports to Asia fell at the slowest pace since November, falling by 28.7%. The published figures come just hours after [B]Nippon Steel[/B], Japan’s largest producer of the metal, agreed to cut the price of the material that it sells to [B]Toyota Motor[/B] by 10%. Such price negotiations could bode well for the country’s suffering export sector. Cuts in production costs may be able to spark vehicle sales, which have plummet 28.6% in the 12 months through April.

[B]Minutes of the Bank of Japan’s[/B] Apr 30 meeting revealed a board that is starting to think of once unfathomable ideas. One member stated that the bank ought to begin discussing plans to exit the program to ease liquidity once the economic recovery occurs. Another member said that monetary policy should have a long-term view. Overall, the temper of the central bank was cautious. For now, no new policies are needed. “A few members said that, although it would take some time for Japan’s economy to achieve a full-fledged recovery, it was likely to recover gradually,” minutes show. Just after the release, [B]Bank of Japan Governor Masaaki Shirakawa[/B] said central banks throughout the world should ensure that their balance sheets stay within a reasonable health level. “In times of crisis, a central bank attempts to provide liquidity aggressively sometimes with taking some credit risk,” Shirakawa said in a speech given in Tokyo today. Despite such emergency measures “a central bank should be cautious about the risk of undermining its credibility.”

[B]Euro Session: What to Expect[/B][/U]

German [B]Consumer Price[/B]s will make headlines tomorrow as traders will be using this figure to gauge how the European Central Bank might react at its June 04 meeting. Expectations call for a subdued, yet still positive, outcome that will plummet to a level last seen over ten years ago. The 0.3% expected EU Harmonised number might actually post slightly lower. In fact, import prices in April significantly undershot forecasts by unexpectedly falling by 0.8%. Estimates called for the figure to actually rise by 0.1%. As a result of the lag between the prices that the producers pay and that which is seen on the shelves, the April import price metric may actually materialize via consumer prices in the month of May. Should the yearly inflation figure post to the nearly-flat side, the ECB may be pressured to act accordingly by taking on additional and more aggressive stimulative measures.

French [B]Business Confidence[/B] is expected to have risen in May for the second consecutive month after 12 months of seeing such sentiment plummet. Business managers are likely to feel more optimistic about their outlook after Consumer Spending in the European country rose unexpectedly by 0.7% in April despite estimates predicting a decline in sales of 0.3%. Italian [B]Hourly Wages[/B] are expected to increase on an annual basis for the first time since December. Such a development would be interesting considering the broader labor situation, which has seen the rate of unemployed in a given quarter drop only once since the summer of 2006.

Related Article: EUR/USD: Trading the German Unemployment Report

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