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Forex outlook:
The dollar traded tightly near a six-week peak against the euro and a three-month high versus the yen on Monday as markets concluded that last Friday's weak U.S. housing data did little to shore up receding expectations of a Federal Reserve interest rate cut.
European market activity was thin due to public holidays in Germany, Switzerland and Britain, while U.S. markets were also expected to be quiet due to the Memorial Day holiday.
Data on Friday showed that the pace of existing U.S. home sales in April was the weakest since June 2003. Analysts concluded, however, that the figures would not be enough to dent broadly positive dollar sentiment as investors were still convinced that the Fed was in no hurry to cut rates from their current 5.25 percent. Other recent U.S. data has been supportive of that view. New U.S. home sales for April released early last week showed their sharpest climb in 14 years, signalling a stabilising housing market and lowering expectations of a rate cut. “We've seen that the past couple of weeks have been more positive in terms of sentiment towards the dollar and even though we got poor figures from the housing makret it didn't change perceptions -- people didn't see that as having a big impact on monetary policy," said Johan Javeus, FX strategist at SEB.
The low-yielding Japanese currency looked weak across the board as investors continued to favor selling low-yielder’s to fund purchases of higher return assets in carry trades. Dealers said the enduring trend for carry trades was reflected in International Money Market data released late last week, with speculators boosting net short yen and Swiss franc positions. Speculators also trimmed bets against the dollar, mostly at the expense of the euro and Australian dollar.
Crude Oil: Crude oil fell as much as 1.4 percent in New York after oil workers in Nigeria, the biggest producer in Africa, ended a two-day strike.``The Nigerian headlines are driving the market lower,'' said Akira Kamiyama, an oil trader at Mitsui & Co. in Tokyo.``The reaction to the news was quite fast as we can see with the sell down.'' Prices also declined on speculation U.S. fuel prices may ease as refiners increase output to meet summer demand. A U.S. government report last week showed gasoline output rose to the highest since December. U.S. crude oil stockpiles are 7.6 percent above their five-year average, according to the Energy Department.
Gold: Future contract prices in Asia were little changed near a two-month low amid speculation the dollar will strengthen further against the Euro, reducing the appeal of the precious metal as an alternative investment. Silver rose. Gold generally moves in the opposite direction to the dollar which last week gained to a six-week high against the Euro. Gold, which traded at a two-month low of $652.01 on May 24, has risen 3 percent so far this year as the dollar dropped 1.9 percent against the Euro. ``When the dollar strengthens, gold goes lower,'' Jonathan Barratt, managing director of Commodity Broking Services in Sydney, said by phone. ``You might see some weakness".Gold future contract trades around the leves of 655.80$.
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