Dollar Yields to Euro, Sterling Recovers

The main development today has been the full recovery of the euro from yesterday's North American slide, which was in part fueled by Moody's rating slash of Greece.  The euro recovered through Asia and then accelerated in a holiday-thin (Ascension Day) European session.  A relatively healthy reception at a Spanish bond auction and reports that Greece will have a medium term fiscal plan to show Juncker tomorrow.  The euro has moved through the $1.4455 area, which represents a 50% retracement of the euro's decline begun in early May.   The $1.45 area is the next psychological level while the $1.4570 is the next retracement objective. 

The UK reported a stronger than expected construction PMI and this helped lift sterling.  It had been testing $1.6550 on Monday and had fallen to almost $1.63 in the European morning today, but has rebounded smartly and is moving above $1.6400, with scope toward $1.6450 today. 

Japanese Prime Minister Kan survived a vote of no confidence, but ironically it will cost him his job in any event.  Reports indicate that he will step down after the second supplemental budget passes the Diet and this could take a few months.  There does not seem to be a date certain for this departure.  Still cannot get too excited about the yen.  The dollar has made a base in recent days near JPY80.60 and appears capped at JPY82.00, and before that JPY81.60.   

Turing to the US, the recent string of economic data has been simply horrific.  Although the ADP track record does not appear to be much better than  consensus forecasts, major investment houses cut forecasts for tomorrow's jobs data by around 30k on average so that, according to Reuters, the median guess is now 150k rather than 180k and private sector is 175k down from 205k.  

There is a palpable fear that officials are out of ammo.  That if the economic slowdown continues, the political climate makes it difficult to envision QEIII or new fiscal stimulus.  If Europe is able to kick the can down the road, which seems likely, then the US straits become increasingly more salient and ultimately dollar negative.