Mid-Day Report: Dollar and Yen Extends Down Trend

Dollar and yen extends recent down trend today, riding on further improvement the optimism of economic recovery. Q1 GDP contraction was revised from -6.1% to -5.7% annualized rate. U of Michigan consumer sentiment was also revised up from 67.9 to 68.7 in May. Though, Chicago PMI disappointingly dropped from 40.1 to 34.9 in May. Commodity currencies are the biggest winners today, boosted additionally by rise in commodity prices as crude oil 66.4 while Gold jumped to as high as 980 level. on the other hand, note that USD/JPY gives back much of the earlier gain this week as Treasury Yields retreat further.

GBP/USD Breaks Through 1.60

The Cable busted through our 2nd tier downtrend line and the psychological 1.60 level as investors return to risk. We view the defeat of our 2nd tier downtrend line as a significant move, giving a green light to the Cable’s bull trend. Our 2nd tier downtrend line stretches back to July 2008 highs, meaning the GBP/USD has a ton of room to the upside with all near-term downtrend pressures out of the way. Investors are reacting to a much stronger than expected Nationwide HPI release, showing home values are improving in Britain.

Yen Strengthens on Improvement in Industrial Production

The USD/JPY's run is fading quickly, backing away from our 2nd tier downtrend line while giving into the heavy downward pressures exerted on price. Present weakness in the USD/JPY comes after a head-turning 5.2% growth in industrial production, giving investors incentive to appreciate the Yen. Investors seem to be ignoring the decline in consumer prices and spending. We have seen improvement in machinery orders, exports, and now industrial production. Therefore, it seems the drivers of growth are recovering, meaning consumer behavior should improve soon as well.

USD Sinks Pressured by Improving Risk Appetite

USD traded at a five month low pressured by improving risk appetite as global equities and crude prices rally to a new high for 2009. Hope for second-half of the year recovery in the global economy fuels demand for equities and commodities. The USD was also pressured by report that South Korea plans to reduce exposure to US bonds and concern about financing of US debt. The Daily Telegraph reports that the six-month high in US 10 year bond yields defies efforts by the Fed to push long-term interest rates lower.

EUR/USD Climbs Past Key 1.40 Level

The EUR/USD has climbed steadily through all of our trend lines, 1.40, and is currently trading just above May 22 highs. This is a very bullish move, and it appears the currency pair is on the verge of a near-term breakout to the upside. The key will be sizable volume backing today's movement. Today's gains come despite a lower than expected CPI reading from the EU, meaning traders are feeding off of a strengthening S&P. Investors also saw stronger than expected German retail sales and M3 money supply.

Forex Strategy Outlook: US Dollar Breakdown Greatly Boosts Performance

The sustained downturn in the US Dollar has boosted performance in our trend-following forex trading signals, with Breakout and Momentum systems selling strongly into Dollar weakness. Our Breakout2 system bought the British Pound (GBPUSD) and Euro (EURUSD) at 1.5282 and 1.3542, respectively, and is clearly sitting on sizeable floating gains through time of writing. Though we can rarely expect to see such accurate and timely forecasts, recent conditions have clearly favored our automated strategies.

COT Data: Speculators Extremely Short US Dollars; Warns of a Turn

Speculative traders remain extremely short US dollars and long the Euro, Australian, New Zealand, Canadian dollars and Swiss Francs. This indicates a sentiment extreme, which favors a turn towards US dollar strength.

US Dollar Forecast Shifts on Trader Sentiment

EURUSD – Euro Forecast Unclear on Extremely Choppy Price Action
GBPUSD – British Pound Outlook Tentatively Bearish on Sharp Shift
USDCHF – Swiss Franc Expected to Rally Further Versus US Dollar
USDCAD – Canadian Dollar Forecast Remains Bullish Against US Dollar
USDJPY – Japanese Yen Forecast Unclear Against US Dollar

US Dollar Slips, Stock Market Futures Rise on Comments by Fed's Bernanke

The US dollar has pulled back against many of the majors, including the euro and Japanese yen, as comments by Federal Reserve Chairman Ben Bernanke in a speech to the Council on Foreign Relations has helped to spur a pick up in risk appetite, as also evidenced by gains in DJIA and S&P 500 futures.