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[forexyard]

These past several weeks have seen a series of positive economic data emerging from various economies. Even a record contraction in Japanese GDP was anticipated and the market impact was minimal. As market optimism takes hold, safe-haven assets such as the USD begin to weaken. Traders have witnessed recently as the greenback has lost strength to most other currencies, and commodity prices have begun to climb back to 2007-2008 price levels. Is the recession coming to an end?

Economic News

USD - Dollar May Slide Further On Global Optimism

The U.S Dollar declined Tuesday against its major counterparts after a report from the U.S. Commerce Department said new construction of houses fell to a record low in April. The USD traded at $1.3630 per EUR after falling 0.5% yesterday. Against the Yen the U.S currency was at 95.94 after decreasing 0.3%. Analysts said that the data showing U.S. housing starts and permits unexpectedly fell to record lows doused the view that the housing market was stabilizing, denting optimism in the market for the U.S currency.

The USD also slid as a result of improving business sentiment in Germany, which spurred renewed optimism about the global economy, reducing demand for safer assets and boosting currencies perceived as riskier. Traders were also closely watching U.S. stock markets for indications about investors' appetite for riskier assets. Earlier, major indexes clawed into positive territory, pushing the dollar to the lows of the day.

The greenback may decline further versus the EUR as three U.S. financial firms' efforts to return government bailout money fueled speculation that banks have sufficient cash, reducing demand for Dollar-safety.

EUR - Pound Reaches 6-Month High vs. USD

The EUR rose on Tuesday, trading at $1.3625, up half a percent from Monday, due to a surprisingly big improvement in German economic sentiment. The ZEW indicator jumped to 31.1 in May from 13.0 in April, above economist estimates of a 20.0 reading. This suggests that analysts and investors were not as grim about the economy as before.

The British Pound also rose to the highest level this year against the Dollar after ICAP, the world's biggest broker of transactions between banks, posted increased profit, and Marks & Spencer Group Plc's net income beat analyst estimates, stoking optimism that the worst of the recession is over.

Analysts said the EUR-positive reaction to the ZEW report suggested that market participants saw improving sentiment in the Euro- Zone as boosting demand for risk, even as other data show that the economy remains weak. Gains in the EUR and Sterling helped to push the Dollar down as some traders unwind positions in the U.S currency. The USD is perceived to be a safe-haven option during times of uncertainty; however, the ongoing bets that the global economy is improving has warmed demand among investors for riskier trades in past weeks.

JPY - Japan's Economy Shrinks at Record Pace

The Yen fell for a 3rd day against the EUR as stocks gained after a government report showed Japan's economy shrank less than expected last quarter. The Yen fell to 131.17 per EUR from 130.81 yesterday in New York trading. The Japanese currency also declined against the Dollar to 95.70.

Japan's economy shrank an annualized 15.2% in the three months ending March 31st, following a 12.1% contraction the previous quarter. Japan's Gross Domestic Product (GDP) has also contracted by 4.0% in the first quarter of this year, marking its biggest quarterly fall on record. Economists have said that despite this very bad data, it was in line with the expectations and therefore neutral in terms of market impact.

Analysts have said that even though some market players were still unsure of the outlook for the Japanese economy, their expectations remain that this is the bottom for the economic recession and they may start to see a recovery from here onwards.

Crude Oil - Crude Hits $60 a Barrel!

Crude Oil prices rose Tuesday, briefly topping $60 a barrel as analysts expected a drop in U.S. crude inventories, though gains were limited by disappointing U.S housing data. Oil's gains yesterday were aided by the Dollar's slump against the other major currencies, which bolstered demand for commodities as an alternative investment. Crude was up 62 cents, or 1.1%, at $59.65 a barrel yesterday. Previously it topped $60 overnight to reach $60.48, the highest level since the middle of November. However, Crude Oil reduced its gains after data showed U.S. April housing starts fell to a new low.

Oil prices have been on an upward trend since mid-April in equity led rallies. They have recovered from below $33 in December last year after a plunge from record highs above $147 in July. On Wednesday, market players will shift their focus to U.S. Crude Oil Inventories data. Analysts expect the data to show a decline in oil reserves by 1.3 million barrels. A reading above or below estimates can have a major influence on Crude Oil trading.

[money_maker]

The Australian and New Zealand dollars rose sharply on Thursday on growing expectations of higher interest rates, while concerns over fiscal health in Greece and Spain kept the euro weak versus the dollar.

Strong Australian jobs data fuelled anticipation that rates will rise further in Australia and the Reserve Bank of New Zealand signalled its rates may rise sooner than thought.

The euro steadied against the dollar, close to lows hit on Wednesday, as sentiment towards the currency stayed negative after ratings agencies highlighted the troubles facing some euro zone countries. Standard & Poor's cut Spain's credit outlook to negative on Wednesday after Fitch had downgraded Greece's credit rating, sparking concerns about selected sovereign debt.

"The euro has probably taken a bit of a hit from these internal problems in the euro zone," said Johan Javeus, currency strategist at SEB in Stockholm.

He said these problems may be sparking renewed concerns among some non-European investors about the potential for the euro zone to break up, although most still see this as extremely unlikely.

Speaking on Thursday, ECB Governing Council member Ewald Nowotny said the current worries about Greece's finances would not split the euro zone