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• US Dollar, Japanese Yen Fall Amidst Low-Volume Trading - More of the Same on Monday?
• Euro, British Pound Rally Extends Sending EUR/USD, GBP/USD into Overbought Territory
• Canadian Dollar: USD/CAD Ends Week Just Above Rising Trendline Support

US Dollar, Japanese Yen Fall Amidst Low-Volume Trading - More of the Same on Monday?
The Japanese yen and the US dollar were the weakest of the major currencies on Friday, though they fell especially hard against the Canadian dollar and New Zealand dollar. For the Japanese yen crosses, there were some notable moves as GBP/JPY finally broke above 150 (though the 200 SMA looms nearby at 152.02) and USD/JPY recovered from key support at 94.00/30. For the US dollar, the currency simply extended its recent decline amidst concerns that the US could be next to face downgrades on its economic outlook by S&P due to deteriorating public finances, something the UK faced on Thursday. There was no US-related news on Friday, but there was one optimistic report from Japan overnight as the Bank of Japan lifted its outlook for the first time in almost three years, saying that while economic conditions have been deteriorating...exports and production are beginning to level out.

Forex market price action should remain quiet on Sunday, the start of the Asian trading session, and throughout Monday due to the US Memorial Day holiday and market closure. That said, RSI on the daily charts of the DXY index has fallen into oversold territory, and when this happened in December 2008 and March 2009, we subsequently saw price bounce higher. As a result, there is potential for the greenback to stage a recovery versus the majors in the near-term, though it could ultimately be short-lived.

Beyond that, there will be a flurry of US economic releases on hand over the course of the week. On Tuesday, the Conference Board's consumer confidence index for the month of May is forecasted to continue rising from its record low of 25.3 reached in February up to 43.0. On Wednesday, the National Association of Realtors (NAR) is anticipated to report that existing home sales rose 2.0 percent in April to an annual pace of 4.66 million from 4.57 million. However, there are indications that the results could prove to be disappointing as the Commerce Department reported on May 19 that housing starts plunged by 12.8 percent during the month of April, and a whopping 54.2 percent from a year earlier, to a record low annual pace of 458,000. On Thursday, US durable goods orders are projected to show that domestic demand may have increased slightly at the start of Q2, as they are forecasted to have risen 0.5 percent in April, but excluding transportation the index is anticipated to fall 0.3 percent.

Finally, on Friday, The second round of US Q1 GDP estimates are due to hit the wires, and the results could be market-moving. The preliminary reading is forecasted to be revised up to -5.5 percent from -6.1 percent, which also marks an improvement when compared to the Q4 2008 result of -6.3 percent. There is some evidence that revisions will be to the downside, though, based on the latest trade and consumption figures.

Euro, British Pound Rally Extends Sending EUR/USD, GBP/USD into Overbought Territory
The euro and British pound made additional headway on Friday against the greenback, as EUR/USD hit an intraday high of 1.4052 while GBP/USD climbed to 1.5948, pushing RSI on the daily charts into overbought territory. Meanwhile, EUR/JPY rocketed nearly 200 points toward 133, keeping the pair contained to a wedge formation, while GBP/JPY finally broke above 150. Only the UK had economic news as UK GDP was confirmed at -1.9 percent in Q1, the sharpest drop since 1979, while the annual rate was confirmed at -4.1 percent, which matched the Q4 1980 low.

A breakdown of the report shows that private consumption fell for the fourth straight quarter at a rate of -1.2 percent, investment tumbled for the fifth straight quarter at a rate of -3.8 percent, and exports plunged by the most since Q3 2006 at a rate of -6.1 percent. The figures highlight part of the reason why S&P downgraded their outlook for the UK from stable to negative, and why the British pound could come under pressure once again in the near-term due to the bleak fundamental outlook. Indeed, when we see RSI rise into overbought territory, we tend to see at least short-term reversals, which could come as soon as next week for GBP/USD, and for that matter, EUR/USD.

Canadian Dollar: USD/CAD Ends Week Just Above Rising Trendline Support

USD/CAD ended the week right above rising trendline support at 1.1200 after Canadian retail sales rose for the third straight month at a rate of 0.3 percent, which was a bit less than expected. The increase was led by car sales, as auto dealers offered bigger rebates in order to boost demand, but excluding this component, retail sales fell 0.2 percent. Overall, Canadian data has generally been better-than-expected lately as the Canadian economy surprisingly added on employees during April and Ivey PMI rose above 50 - signaling an expansion in business activity - for the first time since October 2008. Based on the USD/CAD close above the noted trendline, though, there may be upside potential for the pair over the course of the next week.

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Written by: Terri Belkas, Currency Strategist for DailyFX.com
E-mail: tbelkas@dailyfx.com