Dollar weakens again as crude oil rebounded back to above 70 level on tensions in Iran and Nigeria. Though the downside is limited so far as greenback is somewhat supported by risk aversion on falling Asian stocks. After all, markets lack a clear direction so far. Rebound of dollar and yen since Monday was disappointing as key levels in major pairs and yen crosses are still intact. Indeed, the development so far suggests that we might not have seen the bottom of dollar yet.
For example, the rebound of EUR/USD since 1.3747 is strong enough to dampen the head and shoulder top case. Sterling, being the relatively strongly one, is even holding above minor level of 1.6205. On the other hand, while bearish divergence are seen generally in yen crosses, indicating loss of upside momentum, the crosses are still holding above medium term trend line support which provides no confirmation of reversal yet. After all, we'd turn neutral on dollar for the moment and look for a break of this week's high for reaffirming the bullish case. Otherwise, another broad based decline might be seen before dollar really bottom out.
One of the major focus in European session is the SNB rate decision. The 3-month Swiss Libor is expected to stay at 0.25% at June's meeting and we expect the central bank will give more details on the progress of the bond purchase program it announced in March. Moreover, the central bank may reiterate its intention to prevent Swiss Franc from accelerating against the Euro and state intervention will be adopted in case necessary. Since the announcement of intervention in March, EURCHF has been trading above 1.5 and we believe SNB is satisfied with it and will strive to keep price above that level. While SNB is still using very expansionary monetary policy, the central bank may opt for a return to normalization should there be risk of inflation overshooting the target level. However, recent CPI data indeed highlighted risk of deflation in Switzerland and we do not anticipate the need of reversing current policies any time soon.
Another major focus in European session is retail sales from UK which is expected to rise slightly by 0.3% mom, fall -0.4% in May. UK CBI INdustrial trends orders is expected to improve from -56 to -45.
In US session, Canadian CPI will be the main focus which is expected to show rise 0.3% mom, fall -0.2% yoy in May. Core CPI is expected to moderate further from 1.8% yoy to 1.6% yoy. Initial jobless claims in US is expected to remain above 600k level. Philly Fed survey is expected to improve from -22.6 to -17 in Jun. However, note that Empire State Manufacturing index disappointed the markets on Monday by falling to -9.4 in Jun which triggered selloff in stocks and buying in dollar. Beware of the same development in the release of Philly Fed survey today.