Fundamental Insights

European stocks climbed on Friday after a report showed U.S consumer confidence increased to the highest level in four years in May.

The Stoxx Europe 600 Index gained 0.35 per cent to 251.97.  Germany’s DAX Index rose 0.95 per cent and France’s CAC 40 Index slid 0.01 per cent. The U.K.’s FTSE 100 Index advanced 0.57 per cent to 5,575.52.

“Equity markets are driven by two things: fundamentals and sentiment,” said Lorne Baring, managing director at B Capital SA in Geneva. “Sentiment is being eroded by headline risk as it looks like the euro zone nations are at odds over what to do next.”

USD

US consumer confidence rose by more than four-year high as consumers became more optimistic on the economy outlook. Hence, the dollar got a small boost against other major currencies on Friday. An index of sentiment gained to 77.8 from 76.4 in April, said the University of Michigan on Friday.

“Confidence has been boosted by lower gasoline prices, which has more than offset the stabilization in equity prices,” said Paul Dales, a senior U.S. economist at Capital Economics Ltd. in London.

“At the same time, perhaps the slowdown in the labor market we’ve seen in recent months has been a bit overblown, and in fact people are getting a bit more encouraged about the jobs outlook.”

The USD/JPY was near 30 pips for the day, but was unable to break the psychologically important 80.00 resistance level. Moreover, risk aversion in the marketplace aided the safe-haven dollar create considerable advances against the British pound during Friday's session. The GBP/USD fell over 75 pips over the course of the day to close out the week at 1.6067.

This week, traders should pay attention to Retail Sales and Core Retail Sales reports on Tuesday. Dollar is expected to take losses against yen as a result of the prediction of the forecasted date to be lower than last month.

On Wednesday there is FOMC Meeting Minutes.  Any sign that a new round of quantitative easing is on its way could cause substantial dollar losses against its safe-haven competitors.

The euro continued to fall against its central currency competitors yesterday, as traders remained careful about investing in riskier assets because of political ambiguity in the euro-zone. The EUR/USD fell to an additional three-month low throughout the afternoon session at 1.2929. Today traders should be ready for market instability, as important indicators from the UK and US are going to be released. Pay attention to the UK MPC Rate Statement, the US Trade Balance figure and a speech from Fed Chairman Bernanke. In case the news cause further pessimism in the global economic recovery, riskier currencies like the euro might go down even further.

Summary

USD - Safe Haven Dollar Spreads Gains amidst Euro-Zone Doubts

EUR - Risk Aversion Causes Further Euro Losses

Gold - Declining Demand Causes Fall in Gold Price

Crude Oil - Oil Continues to be Bearish Because of High US Inventories

A batch of negative euro-zone economic indicators, including a worse than expected manufacturing PMI, drove the EUR/USD to its lowest level in over a week during trading yesterday. The news also resulted in the euro dropping over 140 pips against the yen during the European session. Turning to today, European news is forecasted to generate significant market volatility. Traders will want to pay attention to the results of a Spanish debt auction, as well as to the ECB Press Conference at 12:30 GMT. Should any of the news signal further troubles regarding the euro-zone economic recovery, the common currency could drop further before markets close for the week.

Summary

USD - ADP Employment Figure Leads to Dollar Losses

EUR - ECB News Set to Impact Euro Today

AUD - Risk Aversion Leads to Aussie Losses

Crude Oil - US Inventories Figure Causes Oil to Drop

The AUD took heavy losses vs. its main currency rivals during yesterday's trading session, falling a bigger than expected cut in Australian interest rates. The AUD/USD fell over 100 pips following the news, reaching as low as 1.0304 during early morning trading. The aussie also fell close to 100 pips against the JPY and 145 pips against the euro. Turning to today, traders will want to focus on the UK Construction PMI at 8:30 GMT, followed by the US ADP Non-Farm Employment Change at 12:15 GMT. Any positive news could help both the British pound and US dollar reverse their current bearish trends.

Summary

USD - US Manufacturing PMI Gives USD Boost

EUR - EUR Stays Range Bound During Slow Trading Day

Gold - Gold Reverses Gains Following Positive US News

Crude Oil - US Manufacturing Data Signals Increase in Oil Demand

A worse than expected Advance GDP figure sent the dollar tumbling to multi-week lows against several of its main currency rivals on Friday. The EUR/USD closed out the week at 1.3249, up close to 100 pips for the day. Against the JPY, the greenback was down 115 pips to finish the day at 80.27. Turning to this week, the US Non-Farm Payrolls figure should be closely watched when it is released on Friday. In addition, Tuesday's US ISM Manufacturing PMI and Wednesday's ADP Non-Farm Employment Change may lead to significant activity in the marketplace. The dollar may extend its losses should any of the indicators come in below expectations.

Summary

USD - Dollar Volatility Expected Ahead of Non-Farm Report

EUR - Euro Remains Low Despite Smooth Italian Debt Auction

JPY - BOJ Monetary Easing Does Little to Damage Yen Strength

Crude Oil - Crude Oil Sees Gains amid Bearish US Dollar