Risk aversion eases a bit in early US session after release of much better than expected NY State Manufacturing index. The index had the second consecutive month of impressive improvements and rose sharply from -14.6 to -4.6 and is now way above March's low of -38.2. Headline CPI was flat in Apr, dropped -0.7% yoy. Core CPI rose more than expected by 0.3% mom, 1.9% yoy. TIC capital inflow rose more than expected to 55.8b in May. Industrial production dropped -0.5% in Apr, inline with expectation with capacity utilization dropped to 69.1%.

Euro tumbled sharply earlier today following worse than expected GDP report. The Eurozone's GDP contracted -2.5% qoq in 1Q09, the largest decline in 15 year, after dropping -1.6% in the previous quarter. The reading was worse than consensus of -2% as companies reduced output and jobs amid the deepest recession since World War II. Economists anticipated this would the weakness reading as contraction in coming 2 quarter should be less severe. Economies in both Germany and Italy reached record low during the quarter. On annual basis, the gauge declined -4.6%, also worse than market expectation of -4.1% and -1.4% in 4Q08. On the other hand, headline CPI, gaining +0.6% yoy in April, was inline with market estimate while core reading rose +1.7% on annual basis, compared with +1.6% in consensus and the downwardly revised +1.4% in March.

Released overnight, New Zealand's retail sales surprisingly plunged -0.4% mom in March, compared with consensus of +0.5% and +0.3% a month ago. Adjusted for inflation the reading dropped -2.9% in 1Q09 (consensus: -1.5%, 4Q08: -0.7%), the worst in record, as the weak labor market constrained spending. The biggest contributor to the decline was vehicle sales while excluding this component, retail sales rose +0.5% mom in March, better than market expectation of +0.1% and -0.1% a month ago.

In Japan, CGPI slid -0.4% mom in April, worse than consensus of +0.1%, following a downwardly revised -0.3% contraction in the previous month, reinforcing the risk of deflation. On annual basis the gauge recorded the biggest slide in 22 years, by -3.8% (consensus: -3%), following a drop of -2.5% in March. Machine orders in Japan fell -1.3% mom in March (consensus:- 4.7%) after rising +0.6% a month ago, indicating corporations are still reluctant to invest in factories and machinery amid global recession.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3554; (P) 1.3610; (R1) 1.3694

EUR/USD's pull back continues today and dips to as low as 1.3511 so far. Further decline could still be seen to 4 hours 55 EMA (now at 1.3500) or below. But after all, downside is expected to be contained above 1.3250 cluster support. On the upside, above 1.3665 minor resistance will flip intraday bias back to the upside. Decisive break of 1.3737 will confirm that whole rise from 1.2456 has resumed for 100% projection of 1.2456 to 1.3737 from 1.2884 at 1.4165 next.

In the bigger picture, recent development suggest that EUR/USD is still bounded in medium term sideway consolidation that started at 1.2329, with rise from 1.2456 as the third leg. Current rise from 1.2456 might extend further towards towards 1.4719 resistance but after all, upside should be limited that and bring reversal. On the downside, below 1.3250 will be the first signal that rise from 1.2456 has completed and will turn focus back to 1.2884 support for confirmation.

Economic Indicators Update

22:45NZDNew Zealand Retail Sales M/M Mar-0.40%0.50%0.20%0.30%
22:45NZDNew Zealand Retail Sales Ex-Auto M/M Mar0.50%0.10%-0.10%
22:45NZDNew Zealand Retail Sales Ex Inflation Q/Q Q1-2.90%-1.50%-0.60%-0.70%
23:50JPYJapan CGPI M/M Apr-0.40%0.10%-0.20%-0.30%
23:50JPYJapan CGPI Y/Y Apr-3.80%-3.00%-2.20%-2.50%
23:50JPYJapan Machine Orders M/M Mar-1.30%-4.70%1.40%0.60%
06:00EURGerman GDP Q/Q (Q1 P-3.80%-3.00%-2.10%-2.20%
07:15CHFSwiss Retail Sales Y/Y Mar1.20%-2.20%-3.80%
09:00EUREurozone GDP Q/Q Q1 P-2.50%-2.00%-1.60%
09:00EUREurozone GDP Y/Y Q1 P-4.60%-4.10%-1.50%-1.40%
09:00EUREurozone CPI Y/Y Apr0.60%0.60%0.60%
09:00EUREurozone CPI Core Y/Y Apr1.70%1.60%1.50%1.40%
12:30CADCanada Manufacturing Shipments M/M Mar-2.70%1.20%2.20%
12:30USDU.S. CPI M/M Apr0.00%0.00%-0.10%
12:30USDU.S. CPI Y/Y Apr-0.70%-0.60%-0.40%
12:30USDU.S. CPI Core M/M Apr0.30%0.10%0.20%
12:30USDU.S. CPI Core Y/Y Apr1.90%1.80%1.80%
12:30USDU.S. Empire Manufacturing May-4.55-14-14.65
13:00USDU.S. Net Long-term TIC Flows Mar55.8B33.3B22.0B
13:15USDU.S. Industrial Production Apr-0.50%-0.50%-1.50%-1.70%
13:15USDU.S. Capacity Utilization Apr69.10%68.90%69.30%69.40%
14:00USDU.S. U. of Michigan Confidence May P6565.1