Yen crosses recovered mildly in Asia as stocks rebounded by are apparently weighed down by worse than expected German GDP in early European session. Germany Q1 GDP showed deeper than expected contraction of -3.8%, worst since the series started in 1970. Much attention will now turn to Eurozone GDP data to be released later today which is expected to show -2.0% qoq, -4.1% yoy contraction in Q1. Eurozone CPI is anticipated to have stayed at +0.6% yoy in April but as the ECB stated, we will likely see negative inflation in mid-year while the readings will remain below the 2% target in 2010. Core CPI probably have risen modestly to +1.6% yoy in April from +1.5% a month ago.

NZD/JPY is among the yen crosses which drops most today so far. 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.

Technically speaking, NZD/JPY reversed and fell sharply after touching 60.31 resistance earlier this week. Beware of a double top formation (60.31, 60.33) which could confirm completion of medium term rebound from 44.19 and signal long term down trend resumption. 52.87 double top neckline support is the key level to watch.

NZD/JPY

Elsewhere, dollar continued to stay in tight range against most major currencies. A string of economic data will be released from US today, CPI should have dropped-0.6% yoy in April after falling -0.4% a month ago as gasoline price plummeted significantly from the same period last year. On monthly basis, the reading probably stayed flat. Core CPI is expected to have gained +1.8% yoy in April, same reading as in March. Lower in inflationary effect from airfare, hotel rates and cigarettes probably eased the monthly reading to +0.1% from +0.2% in March. Empire manufacturing survey should have improved to -14 in May from -14.65 in the previous month. Upside surprise may be seen as contraction in factory activities has been slowed down. University of Michigan confidence would also have improved to 65 in May from 65.1 a month ago. The Treasury will release the TIC report for March with overall net inflows is forecast to have increased to $35B. Capacity utilization in April should have dropped to 68.9% (March: 69.3%) as the labor report revealed decline in working hours in manufacturing sector.

No change in outlook of dollar index. Some more recovery could be seen towards 4 hours 55 EMA at 83.17. But strong resistance will likely be seen between 83.50 and 84.46 and bring fall resumption that eventually send the index below mentioned 82.19/62 support zone again. A strong break above 84.46 in the index is needed to confirm that the index has bottomed out after a false break of 82.19/62. Otherwise, we'd maintain the bearish view that the index will drop further to 100% projection of 89.62 to 82.63 from 86.87 at 79.88 before concluding the decline between 77.69 long term support and 80 psychological level.

Dollar

EUR/JPY Daily Outlook

EUR/JPY's recovery was limited by 131.13 minor resistance and weakens again. Fall from 134.82 should still be in progress to retest 124.35 support first. Recent development suggests that rebound from 124.35 has completed at 134.82 already, with bearish divergence in 4 hours MACD and RSI. Hence, we'd look forward to a break of 124.35 support to confirm that decline from 1373.37 has resumed. However, above 131.13 will dampen this view and argue that fall from 134.82 is merely a correction, rather than reversal.

In the bigger picture, there are some interpretations that carries even probability. Whole down trend from 08 high of 169.96 has either bottomed at 113.63 or 112.10 and rise from 112.10 could either be the first leg, the third leg or the whole correction to such medium term decline. But in any case, such rally from 112.10 should be limited by resistance zone of 50% retracement of 169.96 to 112.10 at 141.03 and 61.8% retracement at 147.85 and bring down trend resumption. Based on the time spent on the consolidation so far, below 124.35 will be an earlier alert that medium term fall is resuming and will turn focus back to 112.10 low for confirmation.

EUR/JPY

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised
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%
6:00EURGerman GDP Q/Q (Q1 P-3.80%-3.00%-2.10%-2.20%
7:15CHFSwiss Retail Sales Y/Y Mar1.2%-2.20%-3.80%
9:00EUREurozone GDP Q/Q Q1 P-2.00%-1.60%
9:00EUREurozone GDP Y/Y Q1 P-4.10%-1.50%
9:00EUREurozone CPI Y/Y Apr0.60%0.60%
9:00EUREurozone CPI Core Y/Y Apr1.60%1.50%
12:30CADCanada Manufacturing Shipments M/M Mar1.20%2.20%
12:30USDU.S. CPI M/M Apr0.00%-0.10%
12:30USDU.S. CPI Y/Y Apr-0.60%-0.40%
12:30USDU.S. CPI Core M/M Apr0.10%0.20%
12:30USDU.S. CPI Core Y/Y Apr1.80%1.80%
12:30USDU.S. Empire Manufacturing May-14-14.65
13:00USDU.S. Net Long-term TIC Flows Mar33.3B22.0B
13:00USDU.S. Total Net TIC Flows Mar---97.0B
13:15USDU.S. Industrial Production Apr-0.50%-1.50%
13:15USDU.S. Capacity Utilization Apr68.90%69.30%
14:00USDU.S. U. of Michigan Confidence May P6565.1