Dollar continues to trade with a soft tone even though the forex markets are generally consolidating on stocks' mild retreat. Dollar index is pressing support level at 81.87 but looks set to take it out in near term. Sterling, continue to be one of the biggest winner this week, closely following Aussie and Kiwi, and could be staging another strong rally after taking out resistance against Euro and Swiss. Yen recovered mildly following less severe than expected GDP contraction in Q1 too but the recovery is so far limited. After all, there is no change in the overall short term bearish outlook in dollar and yen with risk sentiments as the main driving force in the markets and stocks are set to retest recent highs after the current retreat. Main focus today will be on BoE Minutes, Canadian CPI and Geithner's hearing on TARP.

Dollar index recovers mildly after being supported slightly above 81.87 low. But after all, current fall is expected to resume sooner or later towards 100% projection of 89.62 to 82.63 from 86.87 at 79.88. The current decline from 89.62 is treated as either a correction to rise from 77.69, or being part of a large range consolidation pattern from 88.46. Hence, such fall is expected to be contained above 77.69 low, possibly by 80 psychological level. Meanwhile, a break above 83.22 resistance will now serve as the first alert that dollar index has bottomed out.

On the other hand, Sterling is possibly on the verge of another strong rally considering that EUR/GBP and GBP/CHF are both pressing near term resistance. GBP/CHF is likely set to resume the medium term rebound from 1.5110 and on break of 1.7314/7482 resistance zone, further rally should be seen towards 100% projection of 1.5111 to 1.7482 from 1.5844 at 1.8215. But after all, current rise is treated as a correction in the larger down trend only and upside should be limited there to conclude the correction.

Released earlier, Japan's GDP contracted -4% qoq in 1Q09 (consensus: -4.3%) following a -3.2% a quarter. On annual basis, the gauge dropped -15.2% (consensus: -15.9%), the sharpest decline since 1955, after a -12.1% fall in 4Q08 as exports plunged and companies reduced production amid global recession. GDP deflator rose 1.1% yoy during the quarter, compared with market expectation of +1.8% and +0.7% in 4Q08.

In Australia's Westpac consumer confidence slipped -4.3% mom in May after surging +8.3% in the previous month as consumers were negative above the federal budget which projected a record cash deficit of AUD 57.6B for fiscal 2009/10. The nation's wage cost index also eased to +0.8% qoq in 1Q09, inline with consensus, from +1.2% a quarter ago.

Germany PPI dropped more than expected by -1.4% mom, -2.7% yoy in Apr, lowest level since 1987.

Later today, the BOE will release minutes for the meeting on May 7 and the MPC member should have voted unanimously to keep interest rate unchanged at 0.5% and expand the asset buying program to 125B pound from the previous 50B pounds. Moreover, UK's CBI industrial orders should have hovered around weak level for another month in May (April: -56).

In Canada, CPI probably moderated to +0.6% yoy in April from +1.2% in March due to decline in food and energy prices from the same period last year. On monthly basis, the reading should have risen +0.2% during the month. Excluding food and energy, core PPI is anticipated to have gained +1.8% yoy (consensus: +2%) and +0.1% (consensus: +0.3%) in April. Leading indicators will also be released today which dropped -1.3% mom in March.

In the US, Treasury Secretary Timothy Geithner will speak about TARP while the FED will release the minutes for April 29's meeting. In that meeting, the policymakers decided to keep interest rate at 0-0.25% and continued purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200B of agency debt by the end of the year. The Fed will also buy up to 4300B of Treasury securities. Moreover, the Fed also said there were signs of stabilization in household spending and the pace contraction has slowed down.

EUR/GBP Daily Outlook

EUR/GBP recovers mildly after touching 0.8763 low but after all, intraday bias remains on the downside as long as 0.8852 minor resistance holds. Current fall from 0.9036 is expected to resume whole decline from 0.9494 and target 61.8% projection of 0.9494 to 0.8785 from 0.9036 at 0.8598 next. On the upside, above 0.8852 minor resistance will turn intraday outlook neutral and bring consolidation but upside should be limited well below 0.9036 and bring fall resumption.

In the bigger picture, price actions from 0.9799 so far represent consolidation in the larger up trend, no doubt. Current decline from 0.9494 is treated as the third leg of such correction and might extend towards 100% projection of 0.9799 to 0.8635 from 0.9494 at 0.8330. But downside will likely be contained there, and above 0.8186/8234 key cluster support zone (38.2% retracement of 0.5680 to 0.9799 at 0.8223), to complete the correction. On the upside, though, above 0.9036 will argue that the correction has completed earlier than we thought.


Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised
23:50JPYJapan GDP Q/Q Q1 P-4.00%-4.30%-3.20%
23:50JPYJapan GDP Annualized Q1 P-15.20%-15.90%-12.10%
23:50JPYJapan GDP Deflator Y/Y Q1 P1.10%1.80%0.70%
0:30AUDAustralia Westpac Consumer Confidence May-4.30%--8.30%
1:30AUDAustralia Wage Cost Index Q/Q Q10.80%0.80%1.20%
6:00EURGerman PPI M/M Apr-1.40%---0.70%
6:00EURGerman PPI Y/Y Apr-2.70%-1.30%-0.50%
8:30GBPBOE Minutes0--0--90--0--9
9:00CHFSwiss ZEW Economic Expectations May---27.7
10:00GBPU.K. CBI Industrial Orders May---56
11:00CADCanada CPI M/M Apr0.20%0.20%
11:00CADCanada CPI Y/Y Apr0.60%1.20%
11:00CADCanada CPI Core M/M Apr0.10%0.30%
11:00CADCanada CPI Core Y/Y Apr1.80%2.00%
12:30CADCanada Leading Indicators M/M Apr---1.30%
13:30USDTreasury Geithner Speaks on TARP----
18:00USDFOMC Minutes Apr----