Dollar and yen rebound strongly in early US session after disappointing retail sales report from US. Headline sales unexpectedly dropped for the second consecutive months by -0.4% in Apr while March's contraction was revised down to -1.3%. Ex-auto sales also dropped for second consecutive months by -0.5% while March's contraction was also revised down to -1.2%. Import price index, on the downside, rose 1.6% mom in Apr comparing to expectation of 0.4%.

Dollar and yen are lifted on anticipation of lower open in US stocks. Nevertheless, while some correction might be seen in most dollar and yen crosses, there is little evidence of trend reversal yet. EUR/JPY and GBP/JPY are still holding well above key near term level of 124.35 and 139.00. Even USD/JPY, which might be forming a head and shoulder top, is also holding above 95.61 support. Dollar majors, including EUR/USD, GBP/USD and AUD/USD are still staying inside recent rising channel.

Sterling dips across the board after a rather dovish Quarterly Inflation Report released from BoE today. Governor Mervyn King said that the economy will probably face a slow and protracted recovery. GDP is expected to trough at -4.5% in Q2 before resuming growth in early 2010, and hit around 2.5% growth in two years' time. But the outlook of growth is unusually uncertain. Inflation will probably trough at around 0.5% in Q4 of 2009 but stay below the 2% target before 2012.

Eurozone industrial production dropped more than expected by -2.0% mom, -20.2% yoy in March. ECB council member Kranjec said that ECB will very likely spend more than 60b euros in buying bonds while the 1% rates are appropriate for the moment.

Japan current account surplus widened to 902.3B yen in March, better than consensus of 513.5 B yen and 673.4B yen in the previous month. Also, M2 money supply and CD rose +2.6% yoy in April, also more than market expectation of +2.3% and +2.2% a month ago.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.5112; (P) 1.5231; (R1) 1.5389

Intraday outlook in GBP/USD remains neutral for the moment with 4 hours MACD dragged below signal line again. While upside momentum is clearly diminishing and GBP/USD is very close to key near term resistance of 1.5371, there is still no clear sign of topping yet. Firm break of 1.5371 will indicate that recent rise has resumed and stronger rally is underway towards 1.5722 resistance next. However, break of 1.5063 will flip intraday bias back to the downside for outer channel support at 1.4648. Note that further break of 1.4395 will indicate that whole rise from 1.3654 has completed and turn short term outlook bearish.

In the bigger picture, current rise from 1.3654 is still treated as part of the consolidation that started at 1.3503, which is correcting whole medium term decline from 2.0158. The question remains on how far such correction will go. We're still preferring that such correction will complete at 1.5371 resistance. However, based on current broad based weakness in dollar, firm break of 1.5371 will argue that stronger rise to next cluster resistance of 38.2% retracement of 2.0158 to 1.3503 at 1.6045 and 161.8% projection of 1.3503 to 1.4984 from 1.3654 at 1.6050 would be seen before completion. But in either case, focus will remain on reversal signal. Break of 1.4395 support will now be an important indicate that GBP/USD has topped out and will turn focus back to 1.3503 low.

Economic Indicators Update

23:50JPYJapan Current Account (Yen) Mar902.3B513.5B673.4B
23:50JPYJapan Money Stock M2+CD Y/Y Apr2.60%2.30%2.20%
05:00JPYJapan Eco Watchers Survey: Current Apr34.23028.4
09:00EUREurozone Industrial Production M/M Mar-2.00%-1.00%-2.30%-2.50%
09:00EUREurozone Industrial Production Y/Y Mar-20.20%-17.70%-18.40%-19.10%
09:30GBPBoE Quarterly Inflation Report----
12:30USDU.S. Retail Sales M/M Apr-0.40%-0.10%-1.10%-1.30%
12:30USDU.S. Retail Sales ex-Autos M/M Apr-0.50%0.00%-0.90%-1.20%
12:30USDU.S. Import Price Index M/M Apr1.60%0.40%0.50%0.20%
14:00USDU.S. Business Inventories Mar-1.20%-1.30%
14:30USDCrude Oil Inventories1.1M0.6M