Dollar pares some of yesterday's gain as finance markets stabilize from yesterday's volatility. The 72 pts fall in Nikkei was mild thanks to late rebound in US stocks despite earlier selloff. Crude oil and Gold also recover mildly from yesterday's low. Fitch Ratings said that the AAA ratings of US and UK are backed by their track record and the two countries can readjust their economies, reallocate resources and recover. Markets focus will turn to the three central bank meetings today, BoE, ECB and BoC, all are expected to leave rates unchanged.
BoE extended the asset buying program to 125B pound in May and it's unlikely that the bank will employment further QE policy in June as the current program will likely be taken place through the end of July at the current pace. BoC will likely reiterate to keep its policy rate at 0.25% until the end of the second quarter of 2010, conditional on the inflation outlook. Also, the bank will likely continue to hold off from QE for the moment.
ECB is expected to provide more information on the covered bond buying program as well as update on staff projections. In the previous meeting, the central bank said it will buy 60B euro of covered bonds denominated in euro. The actual may probably be larger than this and ECB President Trichet should signal extension of the current program will not be ruled out. Concerning growth forecast, markets expect downward revision on 2009 GDP to -4% from -2.7% (March projection) while GDP for 2010 should remain at 0%. Inflation outlook will outlook will likely undershoot ECB's target of 2%. The central bank should have revised down CPI estimates to +0.2% and +0.6% from +0.4% and +1%, respectively, in 2009 and 2010.
On the data front, Australia trade balance unexpected turned to -0.09B deficit in April. Japan capital spending dropped -25.3% in Q1. Retail sales in Eurozone is expected to show -0.2% mom, -3.1% yoy contraction in April. Canadian building permits are expected to drop -7.5% mom in April. Ivey PMI is expected to improve further from 53.7 to 54 in May. Initial jobless claims in US is expected to remain elevated at 620k.
Dollar index's break of 79.48 resistance yesterday indicates that a short term bottom is likely formed at 78.33. There is no confirmation of reversal yet. But after all, we expect fall from 89.62 will conclude near to 77.69 level, with 61.8% retracement of 70.70 to 89.62 at 77.92. Hence, even in case of another fall, downside potential should be limited and dollar index should continue to lose momentum. On the other hand a break above 81.13 resistance will add much credence to the case the dollar index has indeed bottomed out. Further break of 82.63 cluster resistance (38.2% retracement of 89.62 to 78.33 at 82.64) will confirm that such fall has completed and the three wave structure will in turn affirm the view that price actions from 88.46 are developing into triangle consolidation, with fall from 89.62 as the third leg.
USD/CAD Daily Outlook
USD/CAD rebounded further to as high as 1.1143 but after all it's still bounded in short term falling channel. There is no confirmation of reversal yet and recent decline is still in favor to continue. Break of 1.0784 low will bring fall resumption towards 61.8% retracement of 0.9056 to 1.3063 at 1.0587 next. However, note that a break of the channel resistance (now at 1.1341) will strongly suggests that recent decline has completed and will turn focus to 1.1814 resistance for confirmation.
In the bigger picture, as mentioned before whole medium term up trend from 0.9056 has completed at 1.3063 and fall from there entered into 1.0297/1.0819 support zone as expected. Note that due to the impulsive nature of the rise from 0.9056 to 1.3063, fall from there is treated as correction in the larger up trend only and will likely be contained by mentioned 1.0297/1.0819 support zone, with 61.8% retracement of 0.9056 to 1.3063 at 1.0587 inside. Hence, focus will remain on reversal signal as USD/CAD re-enters into this support zone again.
Economic Indicators Update
|23:50||JPY||Capital Spending Q1||-25.30%||-27.10%||-17.30%|
|1:30||AUD||Trade Balance (AUD) Apr||-0.09B||1.7B||2.498B||2.30B|
|8:00||GBP||Halifax House Price Index m/m||-1.00%||-1.70%|
|9:00||EUR||Eurozone Retail Sales M/M Apr||-0.20%||-0.60%|
|9:00||EUR||Eurozone Retail Sales Y/Y Apr||-3.10%||-4.20%|
|11:00||GBP||BoE Interest Rate Decision||0.50%||0.50%|
|11:45||EUR||ECB Interest Rate Decision||1.00%||1.00%|
|12:30||EUR||ECB Press Conference|
|12:30||CAD||Building Permits M/M Apr||-7.50%||23.50%|
|12:30||USD||Non-Farm Productivity Q1 F||1.20%||0.80%|
|12:30||USD||Unit Labor Costs Q1 F||2.90%||3.30%|
|12:30||USD||Initial Jobless Claims||620K||623K|
|12:45||USD||Fed Bernanke speaks||--||--|
|13:00||CAD||BoC Interest Rate Decision||0.25%||0.25%|
|14:00||CAD||Ivey PMI May||54||53.7|
|14:30||USD||Natural Gas Storage||117B||106B|