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- Swiss Franc Down After SNB Verbal Intervention - EUR/CHF Shows Potential for Break
- Euro, British Pound Consolidate Below Weekly Highs - Outlook May Hinge Upon Euro-zone Q1 GDP Release

US Dollar, Japanese Yen Slip as US Continuing Jobless Claims Reach New Highs, Ahead of US CPI
The US dollar and Japanese yen lagged behind the rest of the majors as increased risk appetite led US equities and FX carry trades higher. US economic data was mixed, as jobless claims surged beyond forecasts while the producer price index (PPI) rose in line with expectations. Initial jobless claims jumped by 32,000 during the week ending May 9 to 637,000 while continuing claims rocketed by 202,000 during the week ending May 2 to yet another record high of 6,560,000, suggesting that the slowing job losses we saw reflected in last Friday's non-farm payrolls report may have only been temporary. Meanwhile, PPI rose 0.3 percent for the month of April as food costs jumped 1.5 percent. Excluding food and energy costs, PPI only rose a slight 0.1 percent, but despite these increases the annual rates of growth for both indices fell back. Indeed, headline PPI tumbled 3.7 percent from a year ago, marking the sharpest drop since January 1950, while core PPI slowed to a 9-month low of 3.4 percent. These numbers suggest that Friday's US event risk should hit the wires in line with forecasts.

At 8:30 ET, the release of the April reading of the US consumer price index (CPI) is likely to highlight the ultra-slow pace of price growth in the US economy. Indeed, CPI is anticipated to have stagnated during the month, bringing the annualized pace to -0.6 percent - the lowest since January 1955 - from -0.4 percent. On the other hand, the core measure - which excludes volatile food and energy costs - is anticipated to rise 0.1 percent, leaving the annualized rate at 1.8 percent. Overall, the news is likely to add to concerns that the US is on a one-way track to deflation, a concern that has been cited by a few Federal Open Market Committee (FOMC) members, according to the latest FOMC meeting minutes. However, the markets may only respond to the news if core CPI starts to fall dramatically.

Related Article: Crowds Buy into US Dollar Weakness, Signaling Losses Likely

Swiss Franc Down After SNB Verbal Intervention - EUR/CHF Shows Potential for Break
The Swiss franc may have made headway versus the US dollar and Japanese yen, but the currency ended the day down against the commodity dollars, euro, and British pound after Swiss data pointed toward deflation and the Swiss National Bank verbally intervened in the market. At 3:15 ET, the Swiss producer and import price index unexpectedly slipped 0.2 percent for the month of April, dragging the annual rate down to a more than 22-year low of -3.6 percent from -2.8 percent. A breakdown of the report shows that the drop was due primarily to falling import costs, which is partially the result of the persistent appreciation of the Swiss franc, despite the SNB's first intervention announcement on March 12. In fact, the SNB specifically said they would purchase foreign currency to limit the appreciation of the Swiss franc against the euro as the Euro-zone is Switzerland's biggest trader partner.

Since then, though, EUR/CHF has retraced approximately 50 percent of the pair's rally between March 10 and March 17, and perhaps in an effort to stop the decline, SNB Governing Board member Thomas Jordan said that the central bank was implementing franc policy and that the SNB wanted to prevent further franc appreciation. Jordan also said that while it was hard to forecast, he saw a turning point for the Swiss economy in 2010 and noted that Swiss credit market conditions were still very good. That said, EUR/CHF has spent a lengthy amount of time consolidating within a very tight range. Indeed, the Bollinger Bands width is now at the lowest level since November 2007, which was followed by a rapid 300 point break lower, suggesting that EUR/CHF could be facing a break in the near-term as well, though the move has the potential to be bullish or bearish.

Euro, British Pound Consolidate Below Weekly Highs - Outlook May Hinge Upon Euro-zone Q1 GDP Release
The EUR/USD and GBP/USD pairs both spent much of Thursday consolidating below their weekly highs, but breakouts could occur in the near-term. Indeed, GBP/USD may be forming a short-term head and shoulders pattern, as the pair's rally stalled at the 61.8 percent fib of 1.5353-1.5066 and the May 10 highs near 1.5242/50 (shoulders). Meanwhile, EUR/USD may be forming its own head and shoulders pattern, with the shoulders sitting at 1.3665 and the neckline looming below at 1.3555.

In 2008, the release of Euro-zone CPI drew significant attention and sparked major volatility for the euro. However, indicators of growth have become more important, as the European Central Bank has shifted its focus away from inflation and on to the global and regional economic slowdown. As a result, traders should keep an eye on the advanced reading of Q1 GDP, which is forecasted to contract for the fourth straight quarter, this time at a rate of -2.0 percent, compared to -1.6 percent in Q4 2008, while the year-over-year rate could fall by a whopping 4.1 percent. Such data would indicate that the Euro-zone's recession deepened into the start of 2009, and would only raise the odds that the ECB will consider cutting rates further or will need to take more drastic steps than their current plan to buy 60 billion euros worth of covered bonds, and the news could trigger steep losses for the euro. On the other hand, better-than-expected results could lead EUR/USD to continue its rally toward 1.4000.

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