Dollar resumes this week's rebound in early US session as BoE, ECB and BoC announced to keep rates unchanged at 1.00%, 0.50% and 0.25% respectively. EUR/USD takes out 1.4010 support, suggesting a head and shoulder top is completed but there isn't enough selling to sustain below the neckline of 1.4010 yet. Nevertheless, the case of a stronger dollar rebound is starting to build up and some more strength is likely, ahead of tomorrow's non-farm payroll report.

ECB left the key interest rates unchanged at 1.0% as widely expected. Trichet noted in the press conference that the economy will contract at less negative rate after two quarters of very negative growth. Also, after stabilization phase, positive quarterly growth rates are expected by mid-2010. Though, growth staff projection are revised down to -5.1% to -4.1% in 2009, -1.0% and 0.4% in 2010. On inflation, Trichet expects annual inflation to decline further and temporarily remain negative over the coming month before turning positive by end of 2009. Staff projections are revised slightly downward to 0.1% and 0.5% in 2009 and 0.6% to 1.4% in 2010.

BoE left rates unchanged at 0.5% as widely expected. Also, the MPC maintain the 125b pound asset purchase program, that will take another two months to complete. Focus will turn to meeting minutes to be released on Jun 17. Sterling is also pressured on rumor that Prime Minister Gordon Brown will eventually be forced to step down if tomorrow's election results show the ruling Labor Party finish behind Conservatives and Liberal Democrats.

Bank of Canada maintains overnight rate target at 0.25% and reiterates conditional commitment to hold current policy rate until the end of the second quarter of 2010

On the data front, jobless claims came in close to expectation at 621K. US Non-farm productivity was revised up to 1.6% in Q1 while unit labor costs was revised down to 3.0%. Canadian building permits dropped less than expected by -5.4% mom in Apr. Eurozone retail sales unexpectedly rose 0.2% mom in April, with you fall. UK Halifax house price unexpectedly rose 2.6% mom. Australia trade balance unexpected turned to -0.09B deficit in April. Japan capital spending dropped -25.3% in Q1

EUR/USD Mid-Day Outlook

EUR/USD's break of 1.4101 support argues that a small head and shoulder reversal pattern is completed with head at 1.4337. Intraday bias is flipped to the downside and we'd expect a break of the inner rising channel to confirm that a short term top is at least formed. In such case, deeper decline should then be seen to 1.3793 cluster support (38.2% retracement of 1.2884 to 1.4337 at 1.3782) and break there should confirm that whole rise from 1.2884 has completed too. In such case, deeper fall should be see to outer channel support at 1.3252. On the upside, above 1.4240 minor resistance will invalidate this view and turn outlook neutral.

In the bigger picture, there is no change in the view that the rise from 1.2456 is the third leg of medium term consolidation that started at 1.2329. Such consolidation is probably developing into a triangle pattern. Having said that, upside of the current rise from 1.2456 should conclude between 100% projection of 1.2456 to 1.3737 from 1.2884 at 1.4165 and 138.2% projection at 1.4654. Focus starts to be on reversal signal as EUR/USD now enters into this resistance zone. Break of 1.3793 support will be the first signal that EUR/USD has topped out and will turn focus to 1.2884 support for confirmation.

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised
23:50JPYCapital Spending Q1-25.30%-27.10%-17.30%
01:30AUDTrade Balance (AUD) Apr-0.09B1.7B2.498B2.30B
08:00GBPHalifax House Price Index m/m2.60%-1.00%-1.70%
09:00EUREurozone Retail Sales M/M Apr0.20%-0.20%-0.30%-0.10%
09:00EUREurozone Retail Sales Y/Y Apr-2.30%-2.90%-3.90%-3.40%
11:00GBPBoE Interest Rate Decision0.50%0.50%0.50%
11:45EURECB Interest Rate Decision1.00%1.00%1.00%
12:30EURECB Press Conference
12:30CADBuilding Permits M/M Apr-5.40%-7.50%23.50%
12:30USDNon-Farm Productivity Q1 F1.60%1.20%0.80%
12:30USDUnit Labor Costs Q1 F3.00%2.90%3.30%
12:30USDInitial Jobless Claims621K620K623K
12:45USDFed Bernanke speaks----
13:00CADBoC Interest Rate Decision0.25%0.25%0.25%
14:00CADIvey PMI May5453.7
14:30USDNatural Gas Storage117B106B