G7 resolve will be tested by the Euros fresh advance. The 1.60 level will be very important for near-term dollar direction.
Despite more favourable US data releases, the Euro has challenged fresh all-time highs against the dollar with a move to 1.5950
The New York manufacturing index recovered strongly to a figure of +0.6 in April from -22.2 the previous month. Although the data series is very erratic on a monthly view, the sharp improvement will boost confidence that rising US exports will provide a cushion to the manufacturing economy. Headline producer prices also rose a stronger than expected at 1.1% for March and there will be increased speculation that inflation fears will trigger a more cautious Fed policy at the late-April FOMC meeting. In this context, Wednesdays CPI data will also be watched closely.
The February TICS report recorded net long-term US capital inflows of US$72.5bn for the month after revised US$57.1bn previously. There was a drop in Chinese bond holdings, but overall bond inflows were robust while there were small net inflows into equities. The solid reading will provide some background support to the US currency and there will be some additional backing on valuation grounds given the severe decline over the past few months.
In the Euro-zone, the German ZEW index weakened significantly to -40.7 in April from -32.0 previously as companies were increasingly concerned over the inflation and growth outlook. There have also been increased protests from European companies with Airbus Industries warning that the position was severe