News and Events:

There was little in the way of news overnight but markets generally kept the faith and held in taking on a decided more normal look as VIX broke back below 30 for the first time since September. Data was in the news (probably because there was little else to draw attention) but different interpretations of it probably make any strong conclusions hard to draw. US Housing Starts and Building Permits posted new cycle lows taking some of the heat of stocks which got off to another positive start in Europe following on from a good session in Asia.   Hopes that the global economy has seen the worst continued to grow on Tuesday as the European ZEW surveys showed upbeat expectations. This helped EUR/USD on to a high close to 1.3670 and led to European stocks having a positive day. The Pound had a good day again despite data showing deflation is very much with us in the UK and all the problems that are besetting the Government. It seems that the market will not be swayed from its view that growth will return in the coming months. The optimistic outlook helped GBP/USD vault as high as 1.5525, its highest level this year. The JPY was little changed at the end of the day suggesting we market is getting close to having as much risk as it would like at this time. The market is acutely aware that the road ahead is likely to be a bumpy rise, at best, and there will be a few obstacles to be negotiated before we hit the home straight. One only has to witness the US housing data today which were the lowest on record and caused the Dollar to ease away from its lows.   The main news during the Asian session was the announcement of Japanese GDP which was down 4% QoQ and a huge -15.2% YoY. This caused a little risk reduction which saw the Dollar claw back a little ground while the JPY rose somewhat, though it has to be said these knee jerk reactions look a little half-hearted and the market still feels as if it wants to trade with an optimistic attitude. EUR/JPY fell below 130.00 while USD/JPY dropped to 95.50 following the Japanese data but both have cautiously risen since then to 95.75 and 130.40 respectively. EUR/USD dipped below 1.3600 to trigger stops as EUR/JPY sales went through but edged back up to 1.3615.   The Pound remains resilient despite yesterday's deflationary news. GBP/USD did fall to 1.5455 as EUR/USD came off but soon rebounded towards the 1.5500 level. We hear some good buying interest is waiting near 1.5400 while stops are at 1.5550 and 1.5570.


Today's Key Issues (time in GMT):

06:00 EUR German Producer Prices (MoM %) (APR) 0.0% vs. -0.7%

06:00 EUR German Producer Prices (YoY %) (APR) -1.3% vs. -0.5%

08:30 GBP Bank of England Minutes

10:00 GBP May CBI Industrial Trends Total Orders

11:00 CAD Apr Consumer Price Index (MoM %) 0.2% vs. 0.2%

11:00 CAD Apr Consumer Price Index (YoY %) 0.6% vs. 1.2%

11:00 CAD Bank Canada Consumer Price Index (MoM %) 0.1% vs. 0.3%

11:00 CAD Bank Canada Consumer Price Index (YoY%) 1.8% vs. 2%

11:00 CAD Apr Leading Indicators (MoM%) -1% vs.-1.3%

13:30 USD Treasury's Geithner at Senate Hearing on TARP

18:00 USD Federal Open Market Committee Meeting Minutes

The Risk Today:

EurUsd EUR/USD is consolidating above its 200 day average (1.3405) suggesting upside potential. However, intraday charts show the rebound this week is struggling to overcome resistance between 1.3660/70. Consequently, although we retain a bullish outlook, we are prepared to be patient and suspect that the range high (1.3735/95) will not now be tested until later this week or even into next. Below 1.3585 would confirm more lacklustre ranging is likely.

GbpUsd In a world of ranging the uptrend in cable stands out like a sore thumb. Having posted yet another new high the outlook here is more encouraging than elsewhere. Consolidation above 1.5265 would imply further gains into next week and we are targeting 1.5725 (high in Dec08).

UsdJpy Despite the Key Day reversal on last monday there was no follow through buying yesterday and with price capped below 97.25, downside risks for later in the month remain quite strong.

UsdChf With the oscillator rolling bullish from an oversold level the implication is that the recent 1.0980 to 1.1265 range is going to continue and intraday risks are marginally skewed to the upside.

Resistance and Support:

































S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot