Dollar edges lower on the back on further strength in oil price. WTI crude oil climbs to as high as 71.18 and is holding above 70 level. Risk appetite is another factor as broad based rally is seen in Asian stock markets. Nikkei continued to make 2009 high and closed up 204 pts at 9991 level. Yen crosses are generally higher following stocks. Aussie and Kiwi are the strongest gainers today, lifted additionally by Australia consumer confidence which rose to 22 year high of 12.7% in Jun. From a weekly angle, Sterling is indeed the strongest one so far after clearing out recent political uncertainty.

Dollar's pull back is admittedly deeper than expected in some pairs. In addition, last week's fall in AUD/USD, GBP/USD and EUR/USD so far look a bit corrective and argue that another rise there might be seen before topping. We're neutral in dollar index for the moment. Though, upside is slightly favored with 79.03 minor support intact and above minor resistance will reaffirm the bullish case that the index has bottomed at 78.33 and will bring rally to next key resistance at 82.63 (38.2% retracement of 89.62 to 78.33 at 82.64) for confirmation. Below 79.03 will indeed indicate that another low below 78.33 is likely before bottom. But after all, limited downside potential and 77.69/92 key support zone should remain intact.

On the data front, Japanese machine orders dropped more than expected by -5.4% mom, -32.8% yoy in April. German CPI is confirmed to be -0.1% mom, 0.0% yoy in May. Looking ahead, trade balance from UK, US and Canada will be released. Besides, UK Industrial production is expected to dropped -0.1% mom, -12.4% yoy in Apr with manufacturing production rising 0.1% mom, dropping -12.6% yoy. Canadian new housing price index is expected to drop -0.5% mom in April. Fed's beige book will also be released.

Trade deficit probably narrowed further to 6.4B pounds in April from 6.6B in the prior month. Despite the over 20% appreciation in sterling, the currency remained undervalued given the sharp fall in late 2008 and this made foreign goods appeared to be more expensive than domestic products, making decline in imports outpace decline in imports. Moreover, exporters have tried to improve profit margin by raising exports price as sterling still looked relatively cheap. Recent improvement in international trade gave further signals that UK's trade volume should have stabilized.

US' trade deficit is expected to have widened to $29B in April from $27B in the prior month as imports should have risen while exports remained on the downtrend. That said, decline in exports should have moderated as global economic recession has stabilized. Released last week, export orders components of ISM manufacturing index has been rising (May: 48) after reaching a trough at 35.5 in December. This gave us further evidence on improvement of exports in the US.

Trade surplus in Canada should have modestly increased to CAD 1.12B in April, as driven by surge in oil price, after a strong rise to CAD 1.1B in March. China's import data remained robust in April and it had probably helped exports data in Canada. Moreover, improvement was also seen in lumber and auto part exports. However, appreciation in Canadian dollar against USD might have affected exports on the downside. Concerning imports, a small bounce is anticipated following a -4.4% decline in April.

EUR/USD Daily Outlook

EUR/USD's rebound from 1.3803 was slightly stronger than expected and the breach of 1.4070 minor resistance dampens the immediate bearish view. Outlook is neutral for the moment. On the upside, though, note that a break above 1.4337 will indicate that recent rise is still in progress. But after all upside potential should be limited as strong resistance is expected near to trend line resistance at 1.4427. On the downside, below 1.3965 will flip intraday bias back to the downside. Firm break of 1.3782/93 cluster support (38.2% retracement of 1.2884 to 1.4337 at 1.3782) will confirm that rise from 1.2884 has completed and will bring deeper decline to test channel support at 1.3299 next.

In the bigger picture, price actions from 1.2329 are treated as consolidation in the down trend from 1.6039 only, with first leg completed at 1.4719, second at 1.2456. Break of mentioned 1.3793 support will indicate that the third leg from 1.2456 has completed at 1.4337 too and deeper decline should be seen to 1.2456/2884 support zone. Though, in such case, as we're favoring that it's developing into triangle consolidation, downside should be contained by 1.2456/2884 support zone and bring one more rise to complete the consolidation. On the upside, while another rise cannot be ruled out for the moment, focus will remain on reversal signal as EUR/USD approaches trend line resistance (now at 1.4427).

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised
23:50JPYMachine Orders M/M Apr-5.40%-0.70%-1.30%
23:50JPYMachine Orders Y/Y Apr-32.80%-29.50%-22.20%
23:50JPYDomestic CGPI Y/Y May-5.40%-5.10%-3.80%-4.00%
1:00AUDWestpac Consumer Confidence Jun12.70%---4.30%
6:00EURGerman CPI M/M May F-0.10%-0.10%-0.10%
6:00EURGerman CPI Y/Y May F0.00%0.00%0.00%
8:30GBPVisible Trade Balance (GBP) Apr-6.400B-6.589B
8:30GBPIndustrial Production M/M Apr-0.10%-0.60%
8:30GBPIndustrial Production Y/Y Apr-12.40%-12.40%
8:30GBPManufacturing Production M/M Apr0.10%-0.10%
8:30GBPManufacturing Production Y/Y Apr-12.60%-12.90%
12:30CADNew Housing Price Index M/M Apr-0.50%-0.50%
12:30CADInternational Merchandise Trade (CAD) Apr0.8B1.1B
12:30USDTrade Balance Apr-$28.7B-$27.6B
14:30USDCrude Oil Inventories-0.5M2.9M
18:00USDMonthly Budget Statement May-17.5B-20.9B
18:00USDFed's Beige Book----
21:00NZDRBNZ Rate Decision2.50%2.50%