Led by a 12.8 percent gain in rental income, personal income rose 0.2 percent in April despite a small 0.2 percent decline in wage & salaries. Spending on services more than offset the decline in goods keeping nominal personal spending positive on the month. Headline and core inflation moderated in April but remain at high levels.

Real Spending Growth Still Expanding

• On an inflation adjusted basis, spending remained flat in April after registering positive monthly readings in the first quarter. This would normally imply weak personal consumption growth in the current quarter but with about half of the $107B stimulus rebate checks now in the hands of consumers, we expect to see solid spending increases in the coming months.

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Core Inflation Remained Elevated

• The core PCE deflator remained just above the Fed’s preferred target range at 2.1 percent yr/yr. Despite the elevated reading, inflation remains a secondary concern for the Fed. As such we expect the Fed to stay on hold at the June 24-25 FOMC meeting. However, if inflation expectations continue to trend higher, the Fed will be forced to act sooner than they had expected.

Wachovia Corporation
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The dollar relinquished some of its earlier gains versus the majors, initially strengthening to 1.5463 against the euro before settling back near the 1.5550-region. The greenback also remains firm versus the yen, maintaining its gains above the 105-level near 3-month highs just beneath 105.80.

The economic data from the US was mixed today, which included PCE, personal consumption, personal income, Chicago PMI and the University of Michigan sentiment survey. April personal consumption declined to a flat reading versus 0.1% a month earlier, while the personal income report drifted lower to 0.2% from 0.3%. Inflation, according to the PCE index, held steady with the headline reading at 3.2% y/y and 0.2% m/m. The core PCE report slipped to 0.1% from 0.2% a month earlier and at 2.1% y/y. The Chicago PMI report was slightly better than expected in May at 49.1 and improving from 48.3 a month earlier, but continued to remain beneath the key 50-level. Meanwhile, the final reading for the University of Michigan improved moderately from the initial reading to 59.8, but remains mired near its lowest levels in nearly a decade.

Euro hit by Data

The euro slumped beneath the 1.55-region to 1.5463 following a disappointing set of German retail sales data, which unexpectedly declined for the second consecutive month down 1.7% m/m and 1.0% y/y. The Eurozone unemployment rate in April held steady at 7.1%, while the flash inflation for May crept up to 3.6% from 3.3% a month earlier.

The recent slate of softer German data, including yesterday¡¯s labor report, has pressured the euro lower but does not alter our outlook for the ECB to remain hawkish over the coming months. As such, we anticipate a renewed strengthening in the single currency over the coming weeks to retest its all-time highs near 1.60.

MG Financial Group
http://www.mgforex.com

Angelo Airaghi is a Commodity Trading Advisor, registered with the National Futures Association and the Commodity Futures Trading Commission. He has been an active professional since 1990 working for major international financial companies. In the past 10 years, Angelo Airaghi has been an analyst and commentator for national and international media.

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The US dollar pulled back from early morning gains as fresh economic data weighted on future growth prospects and traders looked to clear their books ahead of next week’s busy calendar. As a result, the US dollar slid across the majors but recovered from a two-day losing streak against the Canadian dollar – with data from the latter currency aiding push. The high-yielding New Zealand and Australian dollar picked up minor gains against the greenback as commodity prices moved higher, and led the pairs to trade at 0.783 and 0.956, respectively. On the other side of the yield spectrum, the Swiss franc took the biggest bite out of the US dollar, while the Japanese yen inched higher to 105.4 against the greenback. The dollar would also lose ground against the Euro and British pound. And, volatility will certainly be an issue going into next week with each currency holding a rate decision in their respective dockets.

Back in the US, fresh economic data lowered the growth outlook for the world’s largest economy. The Commerce Department highlighted a 0.2 percent slip in Personal Income and Spending as both indices fell to 0.2 percent from 0.4 percent respectively. The decline in spending does not bode well for second quarter GDP expectations considering it was one of the strong points of the first quarter’s positive revision. Spending is also looking suspect after the release of the final reading of the University of Michigan’s consumer sentiment survey confirmed its 28-year low with a slight upside revision to 59.8. Further generating concern about growth trends, manufacturing activity promises little positive support for second quarter activity. The Chicago PMI reported a contracting factory base even though the index posted a minor improvement with a reading of 49.1 from April’s 48.3.

Rising oil prices limited the appeal of stock investments, and swayed the markets as investors curbed their risk appetite. As a result, the DJIA fell 7.90 points to 12,638.32 points, with 16 of the 30 components declining. Among the broader indices, the S&P500 gained 2.12 points to hold up at 1,400.38 points, with 123 stocks rising to a new 52 week high.
 
Falling stock prices spurred demands for US Treasuries, and led risk adverse investors to seek the safe haven of risk free bonds. As a result, the benchmark 10-Year yield fell to 4.063 percent from 4.083 percent, while the 2-Year yield plunged to 2.653 percent from 2.686 percent.

Looking ahead, the majors are looking at a very volatile week. On the other side of the market, the central banks for Australia, New Zealand, the Euro-Zone and the UK will alter the market’s view of the FOMC and its own stance. Closer to home, the US dollar will likely find a greater platform for price action in the ISM Manufacturing and Non-Farm Payrolls readings. Once again, these numbers will be treated as a litmus test as to whether the world’s largest economy will be able to avoid negative growth through the second quarter.

• Personal income rose 0.2% M/M in April following a 0.4% gain in March.
• Spending rose in line with expectations with a 0.2% gain in April.
• The core PCE deflator posted a 0.1% M/M gain following a 0.2% gain in March.

The U.S. personal income and spending data was basically in line with expectations in April. Personal income was up 0.2% M/M, after rising 0.4% M/M in March. This is not particularly surprising since there was a 0.9% fall in hours worked and the smallest monthly increase in average hourly earnings since May 2006. Personal spending, which is what the market will focus on, was up 0.2% M/M, and was exactly in line with expectations and follows a 0.4% gain in March. The 3-month annualized pace of spending was 3.2% in April, which is well off of March’s 4.5% rate. The rise in the nominal rate of spending was undoubtedly impacted by higher food and energy prices.

In real terms, personal consumption expenditures were flat in April, following a 0.1% M/M gain in March. Real expenditures on durable goods were down 0.2% M/M in April, following a 1.3% slide in March, while spending on non-durables were also soft with a 0.2% M/M decline in April. Durable goods spending was no doubt impacted by the slump in auto sales.

The core PCE deflator, which is the Fed’s preferred measure of inflation was up a modest 0.1% M/M in April, following a 0.2% gain in March. On an annual basis, the PCE deflator was 3.2%, which is unchanged from March, while the core PCE deflator was also unchanged from March at 2.1%. On a 3-month annualized trend inflation was 1.8% in April, as compared to 2.0% in March, while on a 6-month annualized trend, inflation was 2.0% in April, compared to 2.2% in March.

The take away from this report is that the U.S. consumer continues to fight valiantly against the headwinds of a slowing job market, continued weakness in the housing market, and high energy prices. Spending has not imploded, though in real terms it was flat. But all in all, this is probably because of consumers’ anticipating their federal rebate checks. This temporary effect could play a role in the coming months. At the same time, the inflation trends, which were running pretty hot earlier in the year, are now showing some signs of containment. This should come as a bit of good news to the hawks on the FOMC who are still fairly vocal about inflation risk as a policy concern. As such, with spending generally holding up, however meagrely, and inflation risk cooling, the Fed seems well positioned to hold fire on further rate cuts for the time being.

TD Bank Financial Group

The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.

From a technical point of view, the focus is on the GBPUSD this morning. The pair has held above yesterday’s low at 1.9673 and mabe forming a triple bottoms of sorts that will lead to a break above 1.9850.

EUR/USD

The level that we cited as potential support (1.5450/90) has held so far so we are sticking with the bullish bias. Ideally, we’ll be able to tighten up risk early next week. "We are not giving up on the bullish count until we see a clear 5 waves down from 1.5817. The decline, while sharp, could be a double zigzag. If this is a second wave, then it should come as no surprise that the decline is sharp (second waves are sharp so as to convince the majority of market participants that the trend is back down). Look for support in the 1.5450/1.5490 zone (61.8% of 1.5283/1.5818 and 100% ext. of 1.5818-1.5608/1.5664)."

STRATEGY: Bullish, against 1.5283, target above 1.6018

USD/JPY

Recent commentary has stated that "we are looking for a spike through 105.70 in order to complete the entire rally from 95.72. A push through 105.70 would be wave Z from 102.57 in what is a triple combination correction (W-X-Y-X-Z)." The spike through 105.70 yesterday satisfies minimum expectations for wave Z so it is possible that a top is in place at 105.86. A push through 105.86 would likely test resistance from a former congestion zone in the 106.00/65 zone.

GBP/USD

Support held just below 1.97 and a 4th wave should be complete at 1.9672. The corrective sequence took the form of a double flat (complex and labeled W-X-Y). Complex forms such as this are common in 4th waves. On very short term charts, the decline from 1.9803 is a textbook correction. Keep risk at 1.9671

STRATEGY: Bullish, against 1.9671, target above 1.9850

USD/CHF

We know this about the USDCHF; the decline from 1.0624 to 1.0214 is in 3 waves, which is corrective. However, the entire advance from .9647 is also in 3 waves (triangle as wave B). One possibility is that price action since 1.0624 is tracing out another triangle, but in larger degree (as an X wave). If this is the case, then a choppy decline back to 1.03 is the next move.

USD/CAD

We should know very soon whether or not we are completely wrong in our assessment of the USDCAD. We’ve been bulls and waiting for a buying opportunity. We were given that opportunity as the USDCAD dropped into support from the 78.6% of .9710-1.0324 at .9841 last week; a 100 + pip move off of the low is nice but a push through .9997 would inspire confidence in the bullish count. The pair must remain above .9710 for us to remain bulls

STRATEGY: Bullish, against .9710, target above 1.0324

AUD/USD

The rally from .8952 is wave C of a large 5th wave diagonal that could extend to a measured objective just below 1.00 in coming weeks (.9936). Look for support near .9509 (and the line shown on the chart). A bullish bias is warranted against .9290.

NZD/USD

We proposed a bearish bias yesterday, noting that "the rally from .7536 is in 2 nearly equal legs, therefore it is possible that an important top will form soon and that Kiwi will retrace all of the rally from .7536. The decline from .7921 is not the clearest 5 wave drop but it can be counted as such. Therefore a bearish bias is warranted against .7921. Look for resistance near .7866." However, the decline counts better as a double zigzag at this point, so we are standing aside from the bearish bias. We are proposing a bullish count today.

DailyFX

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Greenback oh greenback where shall thee be heading? That is now the consistent wonder upon investors’ minds. The dollar is acquiring back some of its losses and since all believe the dollar is to comeback and to do that with a roar jitters embed their decisions as they…

Consider whether it’s time to start longing the dollar for over the long-term. Majors are weakening against the dollar certainly as they are printing a weakening picture and the state of the U.S economy is of question here especially after the revision to the GDP and the flow of data from the heart of the economy that suggest the probability to markets that the economy is actually to pick up pace in the latter half of the year.

The sentiment is now directed to other economies as all assess the extent of damage and how deep the contagion has actually spread into their homelands. One sure thing is talking place is a sense of relief that oil prices have taken a dive, though still again revolves around the shot-term developments and not the general trend for oil which remains valid to the upside.

Inflation rising pressures has limited central bankers’ scope from adjusting their monetary stance towards slowing growth. The need for alteration varies among the three major banks in question for their economies have diverted situations and classifications. Let’s start with the second largest economy, Japan, early today they revealed that CPI in April fell short of the previous and expectations rising 0.8% while on the year still it fell 0.1% for now Shirakawa is withholding Fukui’s legacy and do not intend to take rates down though their economy is threatened to weaken further.

As for the most hawkish of all, the ECB, today’s the flash CPI estimate for May which is highly accredited in the market, is expected to rise once more to an annualized 3.5% which is added agony to the ECB. As Germany’s retail sales posted their second consecutive unexpected drop after yesterday we saw unemployment rising and today the aggregate rate for the 15 nations is expected unchanged at 7.1 percent. Inflation is truly the fear for the 15 nation economy as so far the slowing economy is affected the most by agonized consumers with lower disposable incomes and as Trichet said growth is ongoing yet on a slower pace and they are let’s face it one of the top performers in the face of a global slowdown, a worldwide credit crisis and an American fallout.

UK meanwhile, was surely the fastest to go down after the U.S as their money markets were highly exposed and they already suffered the same bubble in their economy, the properties bubble, which is imposing on them a new American scenario. The BoE lower rates by a total of 75 bp then held steady again affected by rising inflation. Today’s Gfk consumer confidence fell to the lowest level since 1990 at -29 as Britons see their economy also heading to a recession which King already stated as an option…

Where does that leave the notorious U.S economy the facts mentioned above have left major themselves weak, and now for the dollar supporting facts. The GDP revision yesterday was rather inline with expectations and still the support to the economy was not domestic factors as much as outsiders. For that still the concern is on the labor market, income, spending and confidence. Yesterday the jobless claims printed a weak picture especially as continuing claims hit the highest in four years ahead of the renowned Jobs report next week.

As for inflation on the quarter the Core PCE was revised lower yesterday, and today the feds favorite inflation gage is expected unchanged from the previous in April at 2.1% though sliding slightly on the month with a gain of 0.1%. While when it comes to the major component personal spending is expected to have slowed from March gaining 0.2% after 0.4% in tandem with the slow in income which is expected at 0.1% after 0.3% in March.

The manufacturing performance according to the Chicago PMI is expected with minor improvement at 48.5 after 48.3 yet still in contraction which surprisingly the least upbeat data is much more blown out of proportions! Michigan final is expected unrevised at 59.5 and let’s face it who blames them if we see the strong fluctuations and indicators from the heart of the economy and though we may differ among the interpretation to the state of the economy consumers are the one that actually feel it and they have certainly FELT THE RECESSION!!!

Since the crack of dawn and the day was busy and yet to get more hectic as we head to the weekend so stay tuned for further developments for the heat is just getting started and we are to assess if the dollar has really gotten the groove back or again another false break to and ongoing journey of weakness…

Crown Forex

disclaimer:The above may contain information for investors/traders and is not a recommendation to buy or sell currencies, gold, silver & energies, nor an offer to buy or sell currencies, gold, silver & energies. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. I am not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trading currencies, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, gold, silver &energies presented should be considered speculative with a high degree of volatility and risk.

Dollar is heading for a second monthly advance against the yen as well as euro, as rising US equities and crude oil advances being halted have improved the near-term outlook for the US economy.

Overnight News Bullets

• NO Unemployment rate (May) out at 1.5% vs. 1.6% expected.
• NO Retail Sales MoM/YoY (Apr) out at 0.4%/3.2% vs. 0.6%/3.8% expected.
• EC Euro-Zone M3 YoY (Apr) out at 10.6% vs. 10.3% expected.
• EC Euro-Zone M3 3 mth-av. (Apr) out at 10.7% as expected.
• EC Business Climate Indicator (May) out at 0.54 vs. 0.41 expected.
• EC Euro-Zone Consumer Confidence (May) out at -15 vs. -12 expected.
• EC Euro-Zone Economic Confidence (May) out at 97.1 vs. 96.8 expected.
• EC Euro-Zone Indust. Confidence (May) out at vs. -2 expected.
• EC Euro-Zone Services Confidence (May) out at 8 vs. 7 expected.
• CA Current Account (1Q) out at $5.6B vs. $2.9B expected.
• US GDP QoQ (1Q) out at 0.9% vs. 0.9% expected.
• US Personal Consumption (1Q) out at 1.0% vs. 1.0% expected.
• US GDP Price Index (1Q) out at 2.6% vs. 2.6% expected.
• US Core PCE QoQ (1Q) out at 2.1% vs. 2.2% expected.
• US Initial Jobless Claims (May) out at 372K vs. 370K expected.
• US Continuing Claims (May) out at 3104K vs. 3080K expected.
• US Help Wanted Index (Apr) out at 19 vs. 19 expected.
• US DOE US Crude Oil Inventories (May) out at -8883K vs. -625K expected.
• US EIA Natural Gas Storage Change (May) out at 87 vs. 84 expected.
• NZ Building Permits MoM (Apr) out at 82.1% vs. -9.1% prior.
• UK GfK Consumer Confidence Survey (May) out at -29 vs. -25 expected.
• JN Jobless Rate (Apr) out at 4.0% vs. 3.9% expected.
• JN Tokyo CPI YoY (May) out at 0.9% vs. 0.8% expected.
• JN Natl CPI YoY (Apr) out at 0.8% vs. 1.0% expected.

Markets

• FX: EURUSD flirting with key support at 1.5480 on the strong US figures. Quiet sesion overnight with JPY and NZD rallying.
• Fixed income: Hard sell-off in fixed income yesterday, however looking supported at current levels
• Stocks: Still a positive sentiment, Europe slightly positive while US up 1% and Nikkei posting a 1.50% gain.
• Commodities: Crude continued the volatile week and is once again below $130, silver and gold followed oil down.

O/N Data Heat map:

Calendar

Today’s Highlights:

This and Next Week’s Highlights:

What’s going on?

• Asian stocks have advanced, adding to gains earlier this week and paring this month’s decline. Speculation has centered on earnings benefiting from recent decline in oil prices and stronger dollar.
• Despite continued global credit worries and slowing economic activity, India has managed to hold a growth an annual rate of 8.8%in Q1 of 2008. While India aspires to reach a double digit growth rate in the coming years, higher lending rates for now have cooled the economy from the peak growth period.
• Dollar is heading for a second monthly advance against the yen as well as euro, as rising US equities and crude oil advances being halted have improved the near-term outlook for the US economy.

FX

FX Trading Strategies

Equities

The Recent Sell-off in Statoil Offers a Good Buying Opportunity

Equities: European markets will open flat or slightly higher Friday with U.S. indices and futures relatively unmoved overnight. We recommend buying the low cost airlines after a fall in crude prices to $126 a barrel. EasyJet, Air Berlin and our sector favorite, Ryanair, will likely benefit from oil’s fall and its influence on airlines’ profitability. Dollar weakness will also be a focus and while that’s normally good for automakers, weak consumer sentiment prevents us from recommending the sector.

Equity Trading Strategies

Trade Idea (Equities -TrendSpotter- Buy: STATOILHYDRO - STL:xosl)

The Norwegian oil and natural gas company has endured a massive sell off the last couple of days, our technical indicators are telling us of an oversold state and that the longer term trend is still intact so far. We like the risk/reward setup and look to buy at 190 with a stop at 185, initially targeting 205.

Futures

Silver: We Sell a bounce towards 17.00 area.

Futures Trading Strategies

We Sell Silver (sin8) @ $16.90/17.20 area with a stop above $17.25, target $15.90/50

After 3 days in the red and a 2 figures correction, Silver is holding on support at 16.50. Although we could have a short term bounce, the momentum is to the downside for Precious Metals with Oil ongoing price adjustments.

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Retail sales have declined 1.0% in Germany in April from the same month last year, a somewhat better than expected reading, as market analysts had advanced a 2.0% fall.

In nominal terms, retail sales increased 1.5% year on year. From March to April, retail sales declined 1.7% in real terms, and they fell 1.3% in nominal terms
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Asian Morning Update

Releases from Europe:

Releases from the States:

Yesterday was a day most would have not predicted given the surprising strength in the European releases, the modestly better (but still weak) U.S. GDP and the relentless rise in continuing claims.

What is more Bernanke repeated statements from a few weeks ago that ‘at this stage conditions in financial markets are still far from normal.’ He confirmed that the Fed’s interventions have helped and resulted in narrower credit spreads. However, he also pointed out that some securitization markets are ‘moribund,’ and risk spreads are elevated as are term LIBOR spreads.

Given any foresight that these would be released the market would normally have sold the Dollar with vengeful glee.

That the opposite occurred has the market searching for reasons. Some point out the pullback in oil prices but the Dollar/oil correlation is so erratic it serves a purpose only when it fits and commentators are struggling for other reasons to quote.

Some suggest the growing concerns over inflation are hitting treasury prices and will force the long end of the curve higher which will attract funds back into the Dollar. Certainly the signs are that the Fed’s burst of easing is probably over and that is causing the market to reappraise the possibility of interest rate hikes.

Technically, while the short term was uncertain Dollar cycles were definitely pointing to a recovery and it certainly seems possible that we have seen the low for now - and probably for the rest of the year.

The only uncertainty is whether we enter into further range trading for a month or so before a stronger push higher is seen by the Greenback. While economic numbers from the States are improving they are still not of sufficient strength to warrant a stronger rally and this does put the weighting more on the side of continued range trading.

Month end provides another rash of numbers from Japan and if recent history serves as a forecast then we can expect further softness that should the Yen to soften over the coming week. Meanwhile, further unwinding of Dollar short positions is likely but a bemused market may well be forced to tread carefully today.

More later once the daily analysis has been done…

The following releases are due from Asia due today:

Australia

Private Sector Credit (MoM) +0.8%
Private Sector Credit (YoY) 14.5%

Japan - April

Unemployment Rate 3.9%
Jobs-to-Applicant Rate 0.94
Household Spending (YoY) - 0.7%
Industrial Production (MoM) - 0.5%
Industrial Production (YoY) +1.6%
National CPI (YoY) +0.9%
National CPI ex food & energy (YoY) +0.0%
Vehicle Production (YoY) +2.3% (prior)
Housing Starts (YoY) -11.8%
Annualized Housing Starts 1.111mn
Construction Orders (YoY) -16.0%

Japan - May

Nomura/JMMA Manufacturing PMI 48.6 (prior)
Tokyo CPI (YoY) +0.8%
Tokyo CPI ex food & energy (YoY) +0.0%

U.K.

GfK Consumer Confidence - 25.0

Ian Copsey
Global Forex Trading
http://www.gftforex.com

DISCLAIMER: This forum and the information provided here should not be relied on as a substitute for extensive independent research before making your investment decisions. Global Forex Trading is merely providing this column for your general information. The views of the author are not necessarily those of Global Forex Trading, its owners, officers, agents or employees. In addition, any projections or views of the market provided by the author may not prove to be accurate. Global Forex Trading and Cornelius Luca will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained in this column. Global Forex Trading and Cornelius Luca do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.

• Euro Tumbles As A Break In Employment Overwhelms Strong Retail Figures
• British Pound Weighed Down By Sharp Drop In UK Home Prices

US Dollar Rally Extended As Growth, Rate Forecasts Lifted

Conditions seem to be improving for the ailing US dollar. A strong showing from the economic docket, falling crude prices and a boost to interest rate expectations all helped to drive the greenback to its third consecutive rally today. Looking at the fundamental source of this dollar strength, the first quarter GDP revision took the lead. Though the change to the annualized figure from an initially reported 0.6 percent clip to 0.9 percent merely matched economists’ expectations, the rebound helped sideline fears of an impending recession. The breakdown of the growth report revealed the narrowing of the trade balance to a five-year low - thanks to record exports and curbed imports - marked the largest positive change to the headline reading. However, consumer spending was unchanged at 1.0 percent growth from the year before - the slowest pace of expansion since the 2001 recession. This statistic should act as a warning for traders not to be too optimistic on the outlook for the second half. Indeed, the past two quarters expansion was still the worst period of growth in five years and consumer spending is expected to drop much further as the housing recession deepens and employment trends recede. Looking beyond the economic calendar, the pickup in the growth number added to the hawkish outlook for the June FOMC rate decision that has already been padded by the heavy inflation concerns in the minute’s forecasts and recent Fed speak. Fed Fund futures suggest the market is pricing in a 98 percent chance that rates will be held in June and a 34 percent probability of a quarter point hike in September.

Euro Tumbles As A Break In Employment Overwhelms Strong Retail Figures

The euro dropped nearly 120 points against the US dollar and 50 points against its British counterpart Thursday as a mixed batch of data found bears a little more receptive to fundamentals. From well-stocked European economic calendars, the title of top event risk went to the frequently market-moving German employment numbers. Recently, this indicator has lost some of its clout among the FX crowd as the series has steadily improved for over two years. With the May figures, the unemployment rate was unchanged at a 15-year low 7.9 percent. However, the unemployment change was a considerable surprise when the indicator printed the first increase in jobless claims since January of 2006. The news clearly caught the market off guard; but such a reading was long overdue considering the cooling in exports and sharp rise in input costs that has weighed on business sentiment was bound to catch up with hiring trends. And, while the employment numbers are restraining growth forecasts for vigil rate watchers, the session’s other releases may still have an impact on the speculation down the line. The Bloomberg German retail PMI marked its biggest jump in 18 months - a strong sign for domestic spending. If tomorrow’s German retail sales figure confirms today’s PMI, the balance may be restored to euro and EURUSD can recover some of its losses.

British Pound Weighed Down By Sharp Drop In UK Home Prices

While the British pound recovered somewhat from a steep decline during the European trading session, the release of weaker-than-expected house price data undoubtedly took a toll on sentiment on the currency. UK home prices, as measured by Nationwide Building Society, tumbled 2.5 percent during the month of May - the sharpest decline since record keeping began in 1991 - while prices fell 4.4 percent from a year earlier. Indeed, tighter lending standards have cooled demand for properties and mortgages, leaving the UK housing sector a major soft spot for the national economy. However, given the fact that recent consumer price growth has proven to be stronger than expected and is only forecasted to accelerate faster in coming months, the Bank of England has very little scope to cut rates from the current level of 5.00 percent. If the reality of this situation takes a hold of the markets, GBP/USD could regain footing to climb toward 2.00.

Commodity Dollars: Why Canadian Q1 GDP Could Be Stronger Than Expected on Friday

A reversal in commodity prices, including oil and gold, weighed on the Australian and New Zealand dollars on Thursday. However, the Canadian dollar was impervious to the plunge in crude - with which the currency normally has a strong correlation - as Canada’s current account balance nearly doubled forecasts as exports of goods surged through the first quarter. The current account balance jumped to a C$5.6 billion surplus that was not only a strong rebound from the previous reading but also the largest positive gap for the series since the third quarter of 2006. Even more encouraging for the health of trade was the fact that the fourth quarter balance was revised from its previously stated deficit to a positive C$0.8 billion surplus. The data bodes very well for Friday’s Canadian Q1 GDP release. According to a Bloomberg News poll, economists expect growth to slow to a tepid 0.4 percent pace from 0.8 percent in Q4 2007. However, given the significant jump in exports, the data could be surprisingly strong and lead the Canadian dollar to rally, but regardless, traders should expect a pick up in volatility on this release.

Japanese Yen Tumbles Versus the US Dollar, British Pound

While the Japanese yen traded wildly across most of the majors but made little headway, the currency tumbled against the US dollar and British pound. Indeed, market-wide we’ve seen that traders are becoming a bit more risk seeking, as indicated by the sell-off in the yen and government bonds, and mild gains in equities. Upcoming event risk for the Japanese yen includes CPI and industrial production, but as usual, Japanese fundamentals are not likely to play a big role in price action for the currency. Nevertheless, it’ll be worth watching to see if inflation pressures pick up in line with expectations, and if industrial output continues to falter amidst weaker foreign export demand

DailyFX

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