Dollar is resuming recent down trend and makes new low against AUD, CAD and CHF on a couple of dollar negative news. Firstly, South Korea's state pension fund said it will reduce its exposure to US Treasuries and diversify to other overseas investments like credit bonds. Secondly, de-dollarization may be included in the agenda in the first BRIC summit in Russia next month. Thirdly, Pimco's Bill Gross also warns again that dollar will lose its status as reserve currency status because of too much debt.
The dollar index is still holding above last week's low of 79.81 but it's very likely that consolidation from there has completed earlier at 81.13 after hitting 4 hours 55 EMA and 38.2 retracement of 83.22 to 79.81. A retest of 79.81 low is still anticipated and resumption of down trend is likely based on outlook in major dollar major pairs. While further decline could be seen towards 77.69 medium term support, we'd again look for reversal signals as dollar index re-enters into support zone of 77.69/80.
Elsewhere, the Japanese yen remains the weaker currency along with dollar. So far, NZDJPY, AUDJPY has weakened and CADJPY are the biggest winners this week, rising 3.5%, 3.0% and 2.99% and have all resumed recent up trend. EUR/JPY, on the other hand, is still kept below recent high 137.38 but will likely take this resistance out sooner or later.
Japan released a series of economic data suggesting the pace of economic contraction has moderated but general price level remained weak. National CPI dropped -0.1% yoy in April, compared with consensus and March's -0.3% while core CPI stayed flat at -0.1% yoy during the month. Tokyo CPI, leading indicator for national CPI, slid -0.7% yoy in May after coming in at 0% a month ago. Industrial production rose +5.2% mom in April, higher than market expectation of +3.3% and +1.6% in the previous month. The rise also brought the annual decline to -31.2%, compared with consensus of -32.5% and -34.2% in March. Unemployment rate climbed to 5% in April from 4.8% a month ago. Worsening job market dragged down household spending which plunged -1.3% yoy in April after a -0.4% decline a month ago.
Eurozone's flash HICP estimate is expected to have eased to +0.2% yoy in May from +0.6% a month ago due to strong base effect in energy component. This might be the last month for HICP to stay in positive territory. Moreover, core inflation should also have eased gradually and unwinding of Easter effect in April should be seen. M3 money supply probably eased to +4.5% yoy in April from +5.1% in the previous month due to decline in demand for loans. 3-month moving average of M3 growth also have moderated to +4.5% from +5.1% in March. Unemployment rate is anticipated to have increased o 9.1% in April from 8.9% in March. As indicated in PMI, employment intentions remained weak, especially in manufacturing sector. Germany's retail sales probably rose +0.5% mom in April after dropping -1% a month ago. This would have slowed down the annual contraction to -0.3% from -1.5% in March.
Switzerland's KOF Swiss leading indicator should have improved slightly to -1.78 in May from -1.86 a month ago. In the UK, Gfk consumer confidence was unchanged at -27 in May. Although the reading came in lower than market expectation of -25, it marked the 4th consecutive month without a drop and signaled the confidence level might have bit the bottom.
In the US, annualized GDP should have been revised up to a contraction of -5.5% (preliminary: -6.1%)of 1Q09 as driven by revisions on inventory, net export and constructions. GDP price deflation could remain unchanged at 2.9%. Personal consumption was probably revised down to +2% from +2.2% while core PCE stayed at 1.5% in 1Q09. Chicago PMI is anticipated to have risen to 42 in May with employment index climbing further. Also, watch for new orders component as it surged more than 30 points last month to 42.1. Moreover, University of Michigan Confidence might have risen to 68 in May (preliminary: 67.9) from 65.1 a month ago. Canada's current account deficit probably widened to CAD 10.5B in 1Q09 from CAD 7.5B.
USD/CAD Daily Outlook
USD/CAD's fall resumes after brief recovery and reaches as low as 1.1065 so far today. At this point, further decline is still expected as long as 1.1256 resistance holds, current fall from 1.1814 is expected to extend further to 100% projection of 1.2503 to 1.1475 from 1.1814 at 1.0786. Nevertheless, note mild bullish convergence condition in 4 hours MACD. Break of 1.1256 will argue that a short term bottom is in place and bring stronger rebound.
In the bigger picture, with 1.1464 support taken out, whole medium term up trend from 0.9056 should have completed at 1.3063 already. Also, the impulsive structure of the fall from 1.3063 argues that some deep decline is underway towards 1.0297/1.0819 support zone, with 61.8% retracement of 0.9056 to 1.3063 at 1.05878, before completion. On the upside, above 1.1814 resistance is needed to indicate that such fall from 1.3063 has completed. Otherwise, outlook will remain bearish.
Economic Indicators Update
|23:01||GBP||GfK Consumer Confidence Survey May||-27||-25||-27|
|23:15||JPY||Manufacturing PMI May||46.6||--||41.4|
|23:30||JPY||Unemployment Rate Apr||5.00%||5.00%||4.80%|
|23:30||JPY||Household Spending Y/Y Apr||-1.30%||-0.70%||-0.40%|
|23:30||JPY||Tokyo CPI Core Y/Y May||-0.70%||-0.60%||0.00%|
|23:30||JPY||National CPI Y/Y Apr||-0.10%||-0.30%||-0.30%|
|23:30||JPY||National CPI Core Y/Y Apr||-0.10%||-0.10%||-0.10%|
|23:50||JPY||Industrial Production M/M Apr Prelim||5.20%||3.30%||1.60%|
|23:50||JPY||Industrial Production Y/Y Apr Prelim||-31.20%||-32.50%||-34.20%|
|5:00||JPY||Housing Starts Y/Y Apr||-32.40%||-22.00%||-20.70%|
|6:00||EUR||German Retail Sales M/M Apr||0.50%||-1.00%|
|6:00||EUR||German Retail Sales Y/Y Apr||-0.30%||-1.50%|
|8:00||EUR||Eurozone M3 Y/Y Apr||4.50%||5.10%|
|9:00||EUR||Eurozone CPI Estimate Y/Y May||0.20%||0.60%|
|9:00||EUR||Eurozone Unemployment Rate Apr||9.10%||8.90%|
|9:30||CHF||KOF Swiss Leading Indicator May||-1.78||-1.86|
|12:30||CAD||Current Account (CAD) Q1||-10.5B||-7.5B|
|12:30||USD||GDP (Annualized) Q1 P||-5.50%||-6.10%|
|12:30||USD||GDP Price Index Q1||2.90%||2.90%|
|12:30||USD||Core Personal Consumption Expenditure Q/Q Q1||1.50%||1.50%|
|13:45||USD||Chicago PMI May||42||40.1|
|14:00||USD||U. of Michigan Confidence May Final||68||67.9|