The US dollar continued its steady decline on Tuesday, while the Japanese yen ended on a mixed note, losing against the commodity dollars and euro while gaining against the US dollar, Swiss franc, and British pound. As usual, FX market price action was generally correlated to risk trends, as the S&P 500 and DJIA gained 0.2 percent. While the S&P 500 remains above its 200 SMA, the DJIA has stopped short of its own at 8751.25. Looking to the data on hand, the National Association of Realtors (NAR) reported that US pending home sales rose for the third straight month at a rate of 6.7 percent in April, signaling advancing sales of existing homes. The figures add to indications that recovery may be in the works for the housing sector, though far more substantial evidence needs to be seen before anyone can say that the housing fallout has truly bottomed.
On Wednesday morning, data may show that conditions in US non-manufacturing sector - which accounts for approximately 70 percent of total economic activity in the country and includes retail, services, and finance - improved somewhat in May as the Institute for Supply Management (ISM) index is estimated to rise to 45.0 from 43.7. Indeed, consumer confidence has shown emerging optimism, as the Conference Board’s measure has rocketed to 54.9 from 40.8 and the University of Michigan’s sentiment report rose to 68.7 from 65.1. Since risk trends have proven to be the greater driver of price action in the forex markets, a weaker than expected result could trigger flight-to-quality and thus, gains for the US dollar. On the other hand, evidence suggests we could see a surprisingly strong result, which could boost equities and weigh on safe-haven assets.
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