Sterling remains firm after recent strong rally and is looking forward to a solid retail sales report to extend recent strength. UK retail sales are expected to have gained 0.5% mom in April following an increase of +0.3% in the previous month as the Easter holiday should have boosted spending. Retail indicators, such as CBI and BRC, suggested a good reading in April, too. On annual basis, the gauge should have gained +2.5%, better than +1.5% in March. Public sector new borrowing should have soared 6.5B pound in April following a 19.1B pound rise a month ago. M4 money supply is anticipate to have surged +0.5% mom in April (March: +0.2%) with a high rate of growth of lending to financial sector.

The rally in Sterling has been impressive this week as the pound accelerates after breaking 09 high against dollar. Sterling's strength is also apparent in crosses with EURGBP finally resumed decline from 0.9494 while GBP/CHF is now resuming the medium term rebound from 1.1511. GBP/AUD is also sharply higher above this months low of 1.9684. Technically speaking, while the current rally in the mentioned pairs is generally viewed as corrective in nature, some more near term strength is still expected before completing the correction.

PMI readings in the Eurozone and Germany should have improved further in May. Manufacturing PMI in the Eurozone is expected to have risen to 37.5 from 36.7 in April while that in Germany should come in at 37, compared with 35.4 a month ago, as driven by rising orders and fall inventories. For the services sector, PMI in the Eurozone is expected to have risen to 44 from 43.8 in April while that in Germany should come in at 44.2, compared with 43.8 a month ago.

In the US, initial jobless claims might have reduced to 630K for the week ended May 16 and this would bring the 4-week average to 627K. Leading indicators probably gained +0.6%, the first increase in almost a year and the sharpest gain in 4 years, in April as led improvement in consumer confidence and stabilization in jobless claims. The Philly Fed Survey should also have improved to -18 in May from -24.4 a month ago. Canada's wholesale sales probably contracted -0.8% mom in March after a -0.6% decline a month ago.

Dollar was sharply off yesterday after FOMC minutes revealed that the committee members had discussed on increasing the size of assets purchase. 2009 GDP forecasts were revised down to -2.0% to -1.3%, unemployment rate was revised up to 9.2% to 9.6%. Dollar index's break of 81.87 confirmed that whole decline from 89.62 has resumed and should now target 100% projection of 89.62 to 82.63 from 86.87 at 79.88. Nevertheless, we'd maintain that such decline is treated as either a correction to rise from 77.69, or being part of a large range consolidation pattern from 88.46. Hence, downside is expected to be contained above 77.69 low, possibly by 80 psychological level. On the upside, above 81.66 will turn intraday outlook neutral and bring consolidation. But break of 83.22 resistance is needed to be the first signal that dollar index has bottomed out. Otherwise, short term outlook remains bearish.

GBP/JPY Daily Outlook

GBP/JPY edges higher to 149.92 today and at this point, intraday bias remains on the upside as long as 147.06 minor support holds. With trend line support intact, whole rally from 118.81 should be in progress and break of 150.86/151.49 resistance zone will confirm rally resumption towards 38.2% retracement of 215.87 to 118.81 at 155.88. On the downside, below 147.06 will turn intraday outlook neutral and bring pull back. But downside should be contained above 143.00 support and bring another rise.

In the bigger picture, there is no change in the view that rise from 118.81 is correction to medium term fall from 215.87 only. While such rise might extend further, it's still expected to conclude at 38.2% retracement of 215.87 to 118.81 at 155.88 and bring reversal. Below 138.99 support will indicate that such rebound has completed and the long term down trend from 251.09 is possibly resuming. In such case, we'd be looking forward to a break of 118.81 low eventually. However, note that sustained break of 155.88 fibo resistance will dampen this bearish view and set the stage for stronger rebound to 55 weeks EMA at 162.86 or further to 50% retracement at 167.34 next.


Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised
23:50JPYJapan Tertiary Industry Index M/M Mar-4.00%-1.50%-0.80%
7:30EURGerman PMI Manufacturing May Flash3735.4
7:30EURGerman PMI Services May Flash44.243.8
8:00EUREurozone PMI Manufacturing May Flash37.536.7
8:00EUREurozone PMI Services May Flash4443.8
8:30GBPU.K. Retail Sales M/M Apr0.50%0.30%
8:30GBPU.K. Retail Sales Y/Y Apr2.50%1.50%
8:30GBPU.K. Public Sector Net Borrowing (GBP) Apr6.5B19.1B
8:30GBPU.K. M4 Money Supply M/M Apr0.50%0.20%
8:30GBPU.K. M4 Money Supply Y/Y Apr--17.80%
12:30CADCanada International Securities Transactions (CAD) Mar4.12B6.107B
12:30CADCanada Wholesale Sales M/M Mar-0.80%-0.60%
12:30USDU.S. Initial Jobless Claims630K637K
14:00USDU.S. Leading Indicators Apr0.60%-0.30%
14:00USDU.S. Philly Fed Survey May-18-24.4
15:30USDNatural Gas Storage95B95B