• USD: Higher, skepticism about the EU rescue plan, wholesale sales rise, Lacker warns on rates
• JPY: Higher, tracking stocks, Japan may seek a debt cap, Yuan revaluation speculation
• EUR: Lower, concern about slowing growth, widening deficits and potential new debt downgrades
• GBP: Lower, political uncertainty, retail sales drop, house prices rise, industrial production jumps
• CAD and AUD: AUD lower & CAD higher, weaker equity and commodity markets, China rate hike threat

Overview
The USD traded higher Tuesday supported by doubt that the $1trln EU/IMF rescue plan announced Monday will contain sovereign debt risk from spreading in Europe and in reaction to accelerating inflation in China. There are numerous concerns about the impact of the EU/IMF rescue package. In order for countries to receive aid they must adopt extreme austerity measures. The austerity measures are likely to hurt the EU recovery. There also is concern that the ECB plan to buy bonds could be inflationary. ECB officials say that bond purchases will be sterilized. The EU/IMF rescue plan may not prevent future sovereign debt ratings downgrades in peripheral European nations. EUR was also pressured by speculation that the EU sovereign debt crisis will force the ECB to maintain accommodative monetary policy. As the US economy shows signs of recovery and the Fed is likely to consider a hike before year-end, yield and growth differential are moving in favor of the USD. USD was also supported by a spike in risk aversion as equity markets trade lower and accelerating inflation in China generates the risk of further tightening of monetary conditions in China. China’s inflation rate rose at its fastest pace in 18 months to 2.8%. The Shanghai index closed 1.8% lower partly on fear of tightening of monetary policy in China. The commodity currencies traded lower pressured by weaker equities and threat of tightening in China. CAD downside was limited by gains in cross trade to the EUR. GBP traded lower in volatile trade mainly pressured by UK political uncertainty as the UK political parties try to form a new coalition government. The latest report is that the Liberal Democrats and Labor Party are trying to form a coalition government. This coalition could be a negative for the UK budget outlook and may increase the risk of a downgrade in the UK sovereign debt rating. JPY traded higher supported by safe haven demand sparked by weaker equities and skepticism about the Greek rescue plan. JPY was also supported by a statement from Japan’s finance minister that Japan is considering a debt cap and in reaction to the Reuters report which says China is moving closer to a decision to allow Yuan revaluation. US economic data was mixed with wholesale sales rising more than expected. USD is closely tracking risk sentiment and the direction of equities.

Today’s US data:
March wholesale inventories rose by 0.4%, a rise of 0.5% was expected. March wholesale sales rose by 2.4%, a rise 0.7% was expected.

Upcoming US data:
On May 12th March trade balance will be released along with the April treasury budget. The trade balance is expected to widen to -40bln from -39.7bln last month. On May 13th April import prices and jobless claims for week ending 05/08 will be released. Import prices are expected to rise by 0.8% compared to 0.7% last month. Jobless claims are expected to fall to 438k from 444k last week. On May 14th April retail sales industrial production, capacity utilization and University of Michigan sentiment will be released along with March business inventories. Retail sales are expected to rise by 0.3% compared 1.6% last month. Industrial production is expected to rise by 0.5% compared to 0.1% last month. Capacity utilization is expected at 73.6 compared to 73.2 last month. Michigan consumer sentiment is expected at 73.2 compared to 72.2 last month. Business inventories are expected to rise by 0.3% compared to 0.5% last month.

JPY
JPY traded  higher supported by a spike in risk aversion as equity markets decline in reaction to doubt about the Greek rescue plan and in reaction to report of accelerating inflation in China. Euphoria about the EU/IMF Greek rescue plan has faded as investor’s question how the plan will be paid for and whether the plan will contain contagion at risk from spreading. Acceleration in China’s inflation rate generates concern that China will take additional measures to tighten lending conditions. This could be a drag on the global recovery. JPY was also supported by a statement from Japan’s Finance Minister Kan that Japan is considering a cap on debt issuance. Ratings agencies have warned that Japan’s sovereign debt rating could be cut if JGB bond issuance continues to rise. According to Kan Japan’s the new fiscal year bond issuance should not top ¥44.3 trillion. This is close to the threshold that may trigger a downgrade of Japan’s debt rating. The impact of Kans statement was partly diminished by a statement from Japan’s PM Hatoyama that comments on limiting debt issuance is not official government policy. Reuters reports that a Chinese bank official says that China is ready for a Yuan move. The Reuters report said that this Chinese official referred to a basket of currencies in its monetary policy report which could mean China is moving closer towards allowing Yuan revaluation. JPY and other Asian currencies sometimes trade as a proxy for Yuan revaluation. JPY direction is expected to trade inversely to equities and risk sentiment.

On May 12th March leading indicators will be released expected at 1% compared to 1.2% last month. On May 13th March current account will be released expected at ¥2.15trln compared with ¥1.47trln last month. April money supply and bank lending will also be released on May 13th. Money supply is expected to rise by 0.1% compared to 0.2% last month and bank lending is expected to rise by 0.4% compared to 0.2% last month.

Key technical levels to watch in USD/JPY include support at 91.84 the May 10th low with resistance at 93.55 the May 10h high.

EUR
EUR traded lower pressured by concern that the EU/IMF bailout may fail to contain sovereign debt risk in Europe. The size of the EU/IMF plan is likely to offer a temporary respite to the cost of funding government debt in Europe. The cost of debt financing has dropped over the last few days. The drop in the cost of funding the EU sovereign debt may not be enough to boost demand for the EUR because of concern that EU deficits may continue to widen, growth is likely to slow and the ECB will be forced to maintain accommodative monetary policy. In order for the EU nations to qualify for aid governments must take significant austerity measures to reduce deficits. This will require large spending cuts and tax hikes. Spending cuts and tax hikes are seen as a drag on the EU recovery. Additionally the ECB has pledged to buy bonds. This is essentially a quantitative ease by the ECB. The ECB bond purchases generate concern about price stability and inflation risk. The ECB plans to sterilize its bond purchases but how the ECB will implement the bond purchase plan remains somewhat uncertain. Germany reported that April CPI contracted by 0.1% and wholesale prices rose 1.7%. The EU debt crisis will prevent the ECB from an early exit from liquidity measures and force the ECB to maintain accommodative monetary policy. This may raise credibility issues for the ECB as inflationary pressures may be building. The Feds Lacker today said that the US recovery is on a sustainable path and that inflation is unlikely to stay low. He warned that the Fed cannot wait too long before raising interest rates. Based on the outlook for continued accommodation by the ECB and increased pressure on the Fed to normalize monetary policy, growth and yield differential is moving in favor of the USD. Focus turns to Wednesday’s release of EU Q1 GDP. The EU GDP report will give a good read of how the debt crisis has impacted the EU economy.

On the 12th EU Q1 GDP and industrial production for March will be released. GDP is expected to rise by 0.4% and industrial production is expected at 1.1% to 0.9% last month. On May 13th German Q1 GDP will be released expected at 0.3%.

The technical outlook for the EUR is mixed as EUR trades above 1.2900. Expect EUR support at 1.2586 the May 7th low with resistance at 1.3803 the May 11th high.

GBP
GBP traded lower pressured by UK political uncertainty as UK political parties struggle to form a coalition government. Monday UK PM Brown said that he will stand down and resign by September. The latest reports out of the UK suggest that the Liberal Democrats and Labor Party are moving towards the formation of a coalition government. This coalition could be a negative for GBP because the coalition may not be as aggressive as needed to reduce the UK record budget deficit. Ratings agencies have warned the UK AAA sovereign debt rating is at risk for downgrade if quick action after the election is not taken to reduce the deficit. The Labor Party has expressed concern that rapid deficit reduction could hurt the recovery. It remains to be seen whether the Conservative Party can form a coalition with the Liberal Democrats. This coalition might be a modest positive for the GBP because the Conservatives have pledged to take quick action on the deficit. UK economic data was mixed with retail sales week, house prices rising and manufacturing output strong. April BRC retail sales declined by 2.3%, April RICS house price balance improved +17 from +9 in March and March manufacturing output rose by 2.3%. Monday the BOE elected to hold monetary policy steady and the level of asset purchases unchanged. The BOE is unlikely to make any new policy changes until the political situation in the UK stabilizes. The trade will continue to monitor political news from the UK.

On May 12th March unemployment, average earnings claimant count will be released. On May 13th March trade will be released expected to widen to -7.2bln from -6.2bln in March.

The technical outlook for GBP is negative as GBP trades below 1.5000. Expect near-term support at 1.4475 the May 7th low with resistance at 1.5054 the May 10th high.

CAD
CAD opened lower as risk appetite falls along with weaker equity markets. Equity markets were pressured by skepticism about the EU/IMF rescue plan and threat of tightening policy in China as China’s inflation accelerates. Commodity prices were mixed with gold rising and crude prices weakening. Gold benefits from concern about fallout from sovereign debt risk in Europe. Crude prices were pressured by concern that tightening in China may slow global growth and demand for commodities. CAD turned higher supported by gains in cross trade to the EUR. CAD traded higher Monday supported by a surge in commodity prices and firmer equity markets sparked by news of a mega bailout for the EU. CAD should remain well supported on breaks by BOC rate hike speculation. Last Friday Canada reported a single monthly record rise in employment growth. Canada’s unemployment rate declined to 8.1% from 8.2%. Employment growth rose by a record monthly amount of 108.7k, a 25k rise was expected. The Canadian employment report confirms that the Canadian recovery is gaining momentum. Strong Canadian employment report will likely increase the odds of an earlier BOC rate hike. How the Greek debt crisis impacts global growth outlook will be an important consideration in upcoming BOC monetary policy decisions.  Based on Canada’s domestic growth the BOC is likely to consider a June rate hike barring any substantial new fallout from the EU sovereign debt crisis. BOC rate hike speculation and growth outlook fuels CAD gains versus EUR.EUR/CAD traded at a new low for the move. Focus turns to Wednesday’s release of Canada’s trade balance. The trade balance report is expected to show that strengthening of the global economy has increased demand for Canadian exports.

On May 12th March trade balance will be released expected at 1.7bln compared to 1.4bln last month along with March new housing price index expected at 0.3% compared to 0.1% last month. On May 14th March manufacturing shipments and new motor vehicle sales will be released. Manufacturing shipments are expected up 0.6% compared to 0.1% last month. Motor vehicle sales are expected to rise by 3% compared to 8.1% last month.

The technical outlook for CAD is mixed as USD/CAD trades below 1.0300. Look for near-term support at 1.0101 the May 3rd low with resistance at 1.0571 May 7th high.

AUD
AUD traded lower pressured by declining commodity prices and weaker equity markets. Acceleration in China’s inflation rate and skepticism about the EU/IMF rescue plan dampens risk appetite and sparked selling of commodities and equities. In addition there is a Reuter’s report that China may be moving closer to allowing the Yuan to appreciate. Yuan appreciation could be used as another tool by China to try to combat inflationary pressures and slow growth. The Shanghai index closed 1.9% lower and is down 20% for the year. There were no major Australian economic reports released today. Monday, Australia reported that April NAB business conditions index declined to +8 from +13 last month and Australia’s April job ads declined by 1.2%. Weaker business conditions and the drop in job ads may reflect recent tightening of monetary policy by the RBA. These reports may also contribute to speculation that the RBA will pause its tightening cycle. The RBA Monetary Policy report released Friday states that the RBA believes interest rates are near average level. This suggests that the RBA plans to soon pause in its rate hike cycle. Diminished RBA rate hike speculation is negative for the AUD. The RBA Monetary Policy statement also said that inflation pressures are rising faster than expected. This could mean that the RBA will still leave the door open for possible future rate hikes if inflationary pressures continue. AUD price direction remains closely tied to risk appetite. It remains to be seen if the EU bailout announcement will be sufficient to stop the recent deleveraging in commodities, equities and currency markets. There was little reaction to report that the Australian budget will return surplus ahead of schedule. Focus turns to Wednesday’s release Australia’s housing finance for March. Economic data may be overshadowed by news from Europe in regard to EU sovereign debt and the UK political landscape. USD strength versus Europe appeared to spillover into the today’s AUD trade. AUD rallied from today’s lows as US equities trade higher after the release of a sharp rise in US wholesale sales.

On May 12th March housing finance will be released expected at -1% compared to-1.8% last month. On May 13th April employment growth and unemployment rate would be released. Employment growth is expected at 25k compared to 19.6 K. last month. The unemployment rate is expected to fall to 5.2% from 5.3% last month.

The technical outlook for the AUD is mixed as the AUD trades above 9000. Expect AUD support at 8803 the May 7th low with resistance at 9080 the May 10th high.

Read More

• USD: Higher, skepticism about the EU rescue plan, wholesale sales rise, Lacker warns on rates
• JPY: Higher, tracking stocks, Japan may seek a debt cap, Yuan revaluation speculation
• EUR: Lower, concern about slowing growth, widening deficits and potential new debt downgrades
• GBP: Lower, political uncertainty, retail sales drop, house prices rise, industrial production jumps
• CAD and AUD: AUD lower & CAD higher, weaker equity and commodity markets, China rate hike threat

Overview
The USD traded higher Tuesday supported by doubt that the $1trln EU/IMF rescue plan announced Monday will contain sovereign debt risk from spreading in Europe and in reaction to accelerating inflation in China. There are numerous concerns about the impact of the EU/IMF rescue package. In order for countries to receive aid they must adopt extreme austerity measures. The austerity measures are likely to hurt the EU recovery. There also is concern that the ECB plan to buy bonds could be inflationary. ECB officials say that bond purchases will be sterilized. The EU/IMF rescue plan may not prevent future sovereign debt ratings downgrades in peripheral European nations. EUR was also pressured by speculation that the EU sovereign debt crisis will force the ECB to maintain accommodative monetary policy. As the US economy shows signs of recovery and the Fed is likely to consider a hike before year-end, yield and growth differential are moving in favor of the USD. USD was also supported by a spike in risk aversion as equity markets trade lower and accelerating inflation in China generates the risk of further tightening of monetary conditions in China. China’s inflation rate rose at its fastest pace in 18 months to 2.8%. The Shanghai index closed 1.8% lower partly on fear of tightening of monetary policy in China. The commodity currencies traded lower pressured by weaker equities and threat of tightening in China. CAD downside was limited by gains in cross trade to the EUR. GBP traded lower in volatile trade mainly pressured by UK political uncertainty as the UK political parties try to form a new coalition government. The latest report is that the Liberal Democrats and Labor Party are trying to form a coalition government. This coalition could be a negative for the UK budget outlook and may increase the risk of a downgrade in the UK sovereign debt rating. JPY traded higher supported by safe haven demand sparked by weaker equities and skepticism about the Greek rescue plan. JPY was also supported by a statement from Japan’s finance minister that Japan is considering a debt cap and in reaction to the Reuters report which says China is moving closer to a decision to allow Yuan revaluation. US economic data was mixed with wholesale sales rising more than expected. USD is closely tracking risk sentiment and the direction of equities.

Today’s US data:
March wholesale inventories rose by 0.4%, a rise of 0.5% was expected. March wholesale sales rose by 2.4%, a rise 0.7% was expected.

Upcoming US data:
On May 12th March trade balance will be released along with the April treasury budget. The trade balance is expected to widen to -40bln from -39.7bln last month. On May 13th April import prices and jobless claims for week ending 05/08 will be released. Import prices are expected to rise by 0.8% compared to 0.7% last month. Jobless claims are expected to fall to 438k from 444k last week. On May 14th April retail sales industrial production, capacity utilization and University of Michigan sentiment will be released along with March business inventories. Retail sales are expected to rise by 0.3% compared 1.6% last month. Industrial production is expected to rise by 0.5% compared to 0.1% last month. Capacity utilization is expected at 73.6 compared to 73.2 last month. Michigan consumer sentiment is expected at 73.2 compared to 72.2 last month. Business inventories are expected to rise by 0.3% compared to 0.5% last month.

JPY
JPY traded  higher supported by a spike in risk aversion as equity markets decline in reaction to doubt about the Greek rescue plan and in reaction to report of accelerating inflation in China. Euphoria about the EU/IMF Greek rescue plan has faded as investor’s question how the plan will be paid for and whether the plan will contain contagion at risk from spreading. Acceleration in China’s inflation rate generates concern that China will take additional measures to tighten lending conditions. This could be a drag on the global recovery. JPY was also supported by a statement from Japan’s Finance Minister Kan that Japan is considering a cap on debt issuance. Ratings agencies have warned that Japan’s sovereign debt rating could be cut if JGB bond issuance continues to rise. According to Kan Japan’s the new fiscal year bond issuance should not top ¥44.3 trillion. This is close to the threshold that may trigger a downgrade of Japan’s debt rating. The impact of Kans statement was partly diminished by a statement from Japan’s PM Hatoyama that comments on limiting debt issuance is not official government policy. Reuters reports that a Chinese bank official says that China is ready for a Yuan move. The Reuters report said that this Chinese official referred to a basket of currencies in its monetary policy report which could mean China is moving closer towards allowing Yuan revaluation. JPY and other Asian currencies sometimes trade as a proxy for Yuan revaluation. JPY direction is expected to trade inversely to equities and risk sentiment.

On May 12th March leading indicators will be released expected at 1% compared to 1.2% last month. On May 13th March current account will be released expected at ¥2.15trln compared with ¥1.47trln last month. April money supply and bank lending will also be released on May 13th. Money supply is expected to rise by 0.1% compared to 0.2% last month and bank lending is expected to rise by 0.4% compared to 0.2% last month.

Key technical levels to watch in USD/JPY include support at 91.84 the May 10th low with resistance at 93.55 the May 10h high.

EUR
EUR traded lower pressured by concern that the EU/IMF bailout may fail to contain sovereign debt risk in Europe. The size of the EU/IMF plan is likely to offer a temporary respite to the cost of funding government debt in Europe. The cost of debt financing has dropped over the last few days. The drop in the cost of funding the EU sovereign debt may not be enough to boost demand for the EUR because of concern that EU deficits may continue to widen, growth is likely to slow and the ECB will be forced to maintain accommodative monetary policy. In order for the EU nations to qualify for aid governments must take significant austerity measures to reduce deficits. This will require large spending cuts and tax hikes. Spending cuts and tax hikes are seen as a drag on the EU recovery. Additionally the ECB has pledged to buy bonds. This is essentially a quantitative ease by the ECB. The ECB bond purchases generate concern about price stability and inflation risk. The ECB plans to sterilize its bond purchases but how the ECB will implement the bond purchase plan remains somewhat uncertain. Germany reported that April CPI contracted by 0.1% and wholesale prices rose 1.7%. The EU debt crisis will prevent the ECB from an early exit from liquidity measures and force the ECB to maintain accommodative monetary policy. This may raise credibility issues for the ECB as inflationary pressures may be building. The Feds Lacker today said that the US recovery is on a sustainable path and that inflation is unlikely to stay low. He warned that the Fed cannot wait too long before raising interest rates. Based on the outlook for continued accommodation by the ECB and increased pressure on the Fed to normalize monetary policy, growth and yield differential is moving in favor of the USD. Focus turns to Wednesday’s release of EU Q1 GDP. The EU GDP report will give a good read of how the debt crisis has impacted the EU economy.

On the 12th EU Q1 GDP and industrial production for March will be released. GDP is expected to rise by 0.4% and industrial production is expected at 1.1% to 0.9% last month. On May 13th German Q1 GDP will be released expected at 0.3%.

The technical outlook for the EUR is mixed as EUR trades above 1.2900. Expect EUR support at 1.2586 the May 7th low with resistance at 1.3803 the May 11th high.

GBP
GBP traded lower pressured by UK political uncertainty as UK political parties struggle to form a coalition government. Monday UK PM Brown said that he will stand down and resign by September. The latest reports out of the UK suggest that the Liberal Democrats and Labor Party are moving towards the formation of a coalition government. This coalition could be a negative for GBP because the coalition may not be as aggressive as needed to reduce the UK record budget deficit. Ratings agencies have warned the UK AAA sovereign debt rating is at risk for downgrade if quick action after the election is not taken to reduce the deficit. The Labor Party has expressed concern that rapid deficit reduction could hurt the recovery. It remains to be seen whether the Conservative Party can form a coalition with the Liberal Democrats. This coalition might be a modest positive for the GBP because the Conservatives have pledged to take quick action on the deficit. UK economic data was mixed with retail sales week, house prices rising and manufacturing output strong. April BRC retail sales declined by 2.3%, April RICS house price balance improved +17 from +9 in March and March manufacturing output rose by 2.3%. Monday the BOE elected to hold monetary policy steady and the level of asset purchases unchanged. The BOE is unlikely to make any new policy changes until the political situation in the UK stabilizes. The trade will continue to monitor political news from the UK.

On May 12th March unemployment, average earnings claimant count will be released. On May 13th March trade will be released expected to widen to -7.2bln from -6.2bln in March.

The technical outlook for GBP is negative as GBP trades below 1.5000. Expect near-term support at 1.4475 the May 7th low with resistance at 1.5054 the May 10th high.

CAD
CAD opened lower as risk appetite falls along with weaker equity markets. Equity markets were pressured by skepticism about the EU/IMF rescue plan and threat of tightening policy in China as China’s inflation accelerates. Commodity prices were mixed with gold rising and crude prices weakening. Gold benefits from concern about fallout from sovereign debt risk in Europe. Crude prices were pressured by concern that tightening in China may slow global growth and demand for commodities. CAD turned higher supported by gains in cross trade to the EUR. CAD traded higher Monday supported by a surge in commodity prices and firmer equity markets sparked by news of a mega bailout for the EU. CAD should remain well supported on breaks by BOC rate hike speculation. Last Friday Canada reported a single monthly record rise in employment growth. Canada’s unemployment rate declined to 8.1% from 8.2%. Employment growth rose by a record monthly amount of 108.7k, a 25k rise was expected. The Canadian employment report confirms that the Canadian recovery is gaining momentum. Strong Canadian employment report will likely increase the odds of an earlier BOC rate hike. How the Greek debt crisis impacts global growth outlook will be an important consideration in upcoming BOC monetary policy decisions.  Based on Canada’s domestic growth the BOC is likely to consider a June rate hike barring any substantial new fallout from the EU sovereign debt crisis. BOC rate hike speculation and growth outlook fuels CAD gains versus EUR.EUR/CAD traded at a new low for the move. Focus turns to Wednesday’s release of Canada’s trade balance. The trade balance report is expected to show that strengthening of the global economy has increased demand for Canadian exports.

On May 12th March trade balance will be released expected at 1.7bln compared to 1.4bln last month along with March new housing price index expected at 0.3% compared to 0.1% last month. On May 14th March manufacturing shipments and new motor vehicle sales will be released. Manufacturing shipments are expected up 0.6% compared to 0.1% last month. Motor vehicle sales are expected to rise by 3% compared to 8.1% last month.

The technical outlook for CAD is mixed as USD/CAD trades below 1.0300. Look for near-term support at 1.0101 the May 3rd low with resistance at 1.0571 May 7th high.

AUD
AUD traded lower pressured by declining commodity prices and weaker equity markets. Acceleration in China’s inflation rate and skepticism about the EU/IMF rescue plan dampens risk appetite and sparked selling of commodities and equities. In addition there is a Reuter’s report that China may be moving closer to allowing the Yuan to appreciate. Yuan appreciation could be used as another tool by China to try to combat inflationary pressures and slow growth. The Shanghai index closed 1.9% lower and is down 20% for the year. There were no major Australian economic reports released today. Monday, Australia reported that April NAB business conditions index declined to +8 from +13 last month and Australia’s April job ads declined by 1.2%. Weaker business conditions and the drop in job ads may reflect recent tightening of monetary policy by the RBA. These reports may also contribute to speculation that the RBA will pause its tightening cycle. The RBA Monetary Policy report released Friday states that the RBA believes interest rates are near average level. This suggests that the RBA plans to soon pause in its rate hike cycle. Diminished RBA rate hike speculation is negative for the AUD. The RBA Monetary Policy statement also said that inflation pressures are rising faster than expected. This could mean that the RBA will still leave the door open for possible future rate hikes if inflationary pressures continue. AUD price direction remains closely tied to risk appetite. It remains to be seen if the EU bailout announcement will be sufficient to stop the recent deleveraging in commodities, equities and currency markets. There was little reaction to report that the Australian budget will return surplus ahead of schedule. Focus turns to Wednesday’s release Australia’s housing finance for March. Economic data may be overshadowed by news from Europe in regard to EU sovereign debt and the UK political landscape. USD strength versus Europe appeared to spillover into the today’s AUD trade. AUD rallied from today’s lows as US equities trade higher after the release of a sharp rise in US wholesale sales.

On May 12th March housing finance will be released expected at -1% compared to-1.8% last month. On May 13th April employment growth and unemployment rate would be released. Employment growth is expected at 25k compared to 19.6 K. last month. The unemployment rate is expected to fall to 5.2% from 5.3% last month.

The technical outlook for the AUD is mixed as the AUD trades above 9000. Expect AUD support at 8803 the May 7th low with resistance at 9080 the May 10th high.

• USD: Higher, concern about EU debt contagion, China slowdown, productivity slows, jobless claims drop
• JPY: Higher, supported by a spike in risk aversion as Asian equities tank
• EUR: Lower, fear of Greek contagion risk, ECB leaves rates policy unchanged, EUR/CHF tumbles
• GBP: Lower, services PMI dips, election uncertainty
• CAD and AUD: AUD & CAD lower, Australian retail sales growth slows, Shanghai index falls 4%

Overview  
The dollar index traded at a new high for the year and the USD traded at a 14 month high versus the EUR supported by concern that the EU may not be able to contain the Greek debt crisis and in reaction to fear that tightening in China has slowed the Chinese economy. The Greek prime minister said that taking bailout money from the EU/IMF is Greece’s only hope to avoid a debt default. Rioting and strikes continue throughout Greece in protest of Greece’s plan to impose harsh austerity measures in return for the bailout funds. EUR was also pressured by a heavy selling of the EUR/CHF cross with the CHF  trading at a record high versus the EUR in reaction to report that the SNB pulled its intervention support bid for the EUR. EUR extended its decline after the announcement that the ECB left monetary policy unchanged. EUR staged a modest recovery in reaction to statement from ECB President Trichet that a Greek default is out of the question. Trichet also said that the ECB is not considering buying sovereign debt. EUR was back on the defensive as US stocks tank. GBP traded lower pressured by report of weaker than expected UK services PMI and UK election uncertainty. The UK election is being held today and is expected to result in a hung parliament. Asian equities traded sharply lower with the Shanghai index falling by 4%. The decline in the Shanghai index reflects concern that the Chinese economy is slowing. The decline in Asian equities contributes to risk aversion and fueled selling of commodity currencies. AUD traded lower in reaction to report of weaker than expected Australian retail sales. The CAD was pressured by report of a modest dip in Canada small business confidence with downside limited by report of the surge in Canadian building permits. JPY traded higher supported by safe haven flows and rising risk aversion. US economic data was mixed. Jobless claims declined by slightly less than market expectation.Q1 productivity slowed but came in above expectation and unit labor costs dropped by more than expected. Focus turns to Friday’s release of US April nonfarm payrolls and unemployment rate. Nonfarm payrolls are expected to post a strong rise with the unemployment rate expected unchanged at 9.7%. The Fed’s Bullard said he expects positive US Jobs growth through the summer. The Fed’s Lacker said he sees a durable recovery and that it is best for the Fed to normalize the balance sheet before hiking interest rates. He warned about complacency on inflation.

 Today’s US data:
Initial jobless claims for week ending 05/01 dropped by 7k to 444k, a reading of 442k was expected. Q1 productivity rose by 3.6%, a 2.7% rise was expected. Q1 unit labor costs declined by 1.6%, a 1.1% decline was expected.

 Upcoming US data:
On May 7th April nonfarm payrolls and unemployment will be released. Nonfarm payrolls are expected to rise by 190k compared to 162k last month with the unemployment rate unchanged at 9.7%. March consumer credit will also be released on May 7th expected at -2.35bln compared to -11.51bln last.

 JPY
Japanese markets reopened for the first time in three days and the Nikkei dropped 3%. JPY  traded sharply higher supported by risk aversion as equity markets continue to decline in reaction to concerns about contagion risk from the Greek debt crisis. JPY was also supported by significant gains in cross trade to Europe and commodity currencies. EUR/JPY traded close to 2% lower with EUR pressured by concern that the EU has not taken enough steps to contain the Greek debt crisis. AUD/JPY traded 2% lower as investors continue deleveraging positions in equity and commodity markets because of fear the Greek debt crisis may be spreading. It’s interesting that the recent strength of the JPY has not sparked threats of intervention from Japan. A Japanese government panel recently called for the BOJ set an inflation target and targets for the JPY. Stronger JPY contributes to deflationary pressures and could slow the recent rebound in Japan’s export sales. JPY direction is expected to trade inversely to equities and risk sentiment.

 On May 6th Japan’s April vehicle sales will be released.

 Key technical levels to watch in USD/JPY include support at 92.40 the April 20th low with resistance at 93.98 the May 6th high.

 EUR
EUR traded at a 14 month low versus the USD pressured by ongoing worries about the Greek debt crisis and heavy selling in cross trade to the CHF. For months the SNB has intervened and threatened to intervene in support of the EUR/CHF cross. The CHF has been in demand from investors seeking safety from the Greek debt crisis. SNB officials fear that appreciation of the CHF would contribute to deflationary pressures in Switzerland. The SNB has been accumulating large amounts in EUR during its intervention and today’s decision to pull this bid may partly reflect the SNB’s decision  that it’s becoming too costly to hold so many EUR’s with the EUR declining every day. Reassuring statements from EU officials failed to support the EUR. EU commission head Barrosso said that he is certain that all European countries will approve the Greek aid package. EU’s Banier said that he does not fear the risk of contagion from Greece. The ECB left interest rates unchanged at 1%. The EUR dropped to a fresh low for the trading session in reaction to the ECB’s decision to hold rates policy steady as the ECB provided no new measures to combat the fallout from the Greek crisis. In the press conference following the ECB rate decision ECB president Trichet said that rates are appropriate, inflation expectations remain well anchored, the economic recovery may be uneven at times but he expects the economy to strengthen in the spring and risk to this outlook is broadly balanced. He went on to say that concerns remain about financial market stress. In the Q&A Trichet said that the ECB did not discuss buying EU bonds or additional quantitative easing measures. Today’s EU economic data continues to point towards firming of the recovery. German March manufacturing orders rose by 0.5%. EUR experienced a bit of stability above 1.27 after S&P announced that it was reaffirming its outlook for the Italian debt outlook as stable and  EU officials have been critical of the credit rating agencies complaining that some of the recent credit downgrades were unwarranted and exacerbate the EU sovereign debt crisis. EUR tried to stage a recovery rally in reaction to a statement from Trichet that Greek default was out of the question.  EUR remains vulnerable to fear of contagion debt risk in Europe. The Greek parliament is expected to vote on the aid package today. The Greek PM said that without the aid package there is no way that Greece could avoid default. The Greek parliament passed the austerity bill.

The technical outlook for the EUR is negative as EUR breaks 1.2800. Expect EUR support at 1.2616 the March 11th 2009 low with resistance at 1.2857 the May 6th high.

 GBP
GBP traded lower pressured by disappointing UK service sector PMI report and UK election uncertainty. UK April services PMI declined to 55.3 from 56.5 last month. The unexpected decline in UK services PMI may spark concern about the strength of the UK recovery. Wednesday the UK reported that construction PMI rose to its highest level in 32 months. Today’s modest decline in services PMI should not generate too much concern about the UK recovery as recent UK data including yesterday’s construction PMI point to strengthening of the recovery and rising inflationary pressures. The UK election is taking place today and there is fear that the election will result in a hung parliament for the first time since 1974. A hung parliament may make it difficult for the UK addresses its record budget deficit. Failure to take quick action to tackle the UK budget deficit could result in downgrade UK AAA debt rating. GBP downside is currently limited by significant gains in cross trade to the EUR as investors flee the EUR because of concern that the sovereign debt risk in the EU is spreading. Investors have become more comfortable with the idea that no matter what the result of the UK election the members of the UK parliament know that it must take action to reduce the deficit. UK election outcome has become less of a negative for the GBP.

 UK national election will be held on May 6th. On May 7th April PPI will be released expected at 3.8% compared to 3.6% last month. The BOE policy meeting will be delayed until May 10th because of the UK election.

The technical outlook for GBP is mixed as GBP struggles to hold above 1.5200. Expect near-term support at 1.4893 the March 29th low with resistance at 1.5265 the May 4th high.

 CAD
CAD traded lower pressured by a spike in risk aversion, and weaker equity and commodity markets. CAD downside was limited by a strong Canadian builders permit report. Fear of a debt contagion from the Greek fiscal crisis has encouraged investors to the de-leverage positions in growth led and commodity-based currencies. Crude oil prices dropped below $80 a barrel Thursday. Fear that growth is slowing in China contributes to selling pressure of commodities. Sunday, China hiked its bank reserve ratio by 50bps for third time this year and Monday China reported a slowing in its manufacturing sector. The Shanghai index dropped 4% Thursday on concern about slowing growth in China. Canada’s building permits surged 12.2% in March, a 0.9% rise was expected. Strong Canadian housing data was offset by Greek debt contagion fear and report of a dip in Canadian small business confidence. Canada’s small business confidence declined to 66.4 from 69.9 last month. April Ivey PMI came in above expectations at 58.7 compared to 57.8 last month, a reading of 56.8 was expected. There was limited reaction to a statement from Canada’s Finance Minister Flaherty that he does not think the Greek crisis is a direct threat Canada but he fears it will hurt other countries. If the Greek debt contagion spreads to other countries it could eventually slow the global recovery and hurt the outlook for Canadian export sales. Focus turns to Friday’s release of US and Canadian employment data. Investors will be looking closely at the employment growth component of the Canadian report for clues to the strength of the recovery and to gauge the possible risk of an earlier BOC rate hike.

On May 7th April unemployment and employment growth will be released. The unemployment rate is expected at 8.1% compared to 8.2% last month with employment growth at 25k compared to 17.9k last month.

 The technical outlook for CAD is negative as USD/CAD trades above 1.0200. Look for near-term support at 1.0232 the May 5th low with resistance at 1.0408 May 6th high.

 AUD
AUD traded lower pressured by declining equity and commodity markets and rising risk aversion sparked by fears of debt contagion risk in Europe and slowing growth in China. Investors are liquidating holdings of stocks, commodities and high-yield currencies because of lack of confidence that EU officials can contain the spread of the Greek fiscal crisis. AUD is also weakening in reaction to concern about slower growth in China and speculation that the RBA will pause its tightening cycle. China reported that manufacturing growth slowed in March. The Shanghai index declined by 4% Thursday. China is a major export destination for Australia and slowing growth in China could hurt the Australian recovery. AUD was also pressured by report of weaker than expected Australian retail sales. Australia’s Q1 retail sales rose by 0.1%, a 0.8% rise was expected. Australia’s March trade balance narrowed -2.08bln from -2.2bln last month. The RBA hiked interest rates 25bps to 4.25% Tuesday. In a statement following the RBA rate hike, RBA Governor Stevens suggests that Australian interest rates were near the average. This statement by Stevens suggests that the RBA is considering a pause in its rate hike cycle. AUD direction is expected to continue to track equities and commodities. AUD remains vulnerable to diminished RBA rate hike speculation.

 On May 7th Australia is monetary policy report would be released.

 The technical outlook for the AUD is negative as the AUD breaks below 9100. Expect AUD support at 8935 the March 1st low with resistance at 9118 the May 5th high.

• USD: Higher, concern about EU debt contagion, China slowdown, productivity slows, jobless claims drop
• JPY: Higher, supported by a spike in risk aversion as Asian equities tank
• EUR: Lower, fear of Greek contagion risk, ECB leaves rates policy unchanged, EUR/CHF tumbles
• GBP: Lower, services PMI dips, election uncertainty
• CAD and AUD: AUD & CAD lower, Australian retail sales growth slows, Shanghai index falls 4%

Overview  
The dollar index traded at a new high for the year and the USD traded at a 14 month high versus the EUR supported by concern that the EU may not be able to contain the Greek debt crisis and in reaction to fear that tightening in China has slowed the Chinese economy. The Greek prime minister said that taking bailout money from the EU/IMF is Greece’s only hope to avoid a debt default. Rioting and strikes continue throughout Greece in protest of Greece’s plan to impose harsh austerity measures in return for the bailout funds. EUR was also pressured by a heavy selling of the EUR/CHF cross with the CHF  trading at a record high versus the EUR in reaction to report that the SNB pulled its intervention support bid for the EUR. EUR extended its decline after the announcement that the ECB left monetary policy unchanged. EUR staged a modest recovery in reaction to statement from ECB President Trichet that a Greek default is out of the question. Trichet also said that the ECB is not considering buying sovereign debt. EUR was back on the defensive as US stocks tank. GBP traded lower pressured by report of weaker than expected UK services PMI and UK election uncertainty. The UK election is being held today and is expected to result in a hung parliament. Asian equities traded sharply lower with the Shanghai index falling by 4%. The decline in the Shanghai index reflects concern that the Chinese economy is slowing. The decline in Asian equities contributes to risk aversion and fueled selling of commodity currencies. AUD traded lower in reaction to report of weaker than expected Australian retail sales. The CAD was pressured by report of a modest dip in Canada small business confidence with downside limited by report of the surge in Canadian building permits. JPY traded higher supported by safe haven flows and rising risk aversion. US economic data was mixed. Jobless claims declined by slightly less than market expectation.Q1 productivity slowed but came in above expectation and unit labor costs dropped by more than expected. Focus turns to Friday’s release of US April nonfarm payrolls and unemployment rate. Nonfarm payrolls are expected to post a strong rise with the unemployment rate expected unchanged at 9.7%. The Fed’s Bullard said he expects positive US Jobs growth through the summer. The Fed’s Lacker said he sees a durable recovery and that it is best for the Fed to normalize the balance sheet before hiking interest rates. He warned about complacency on inflation.

 Today’s US data:
Initial jobless claims for week ending 05/01 dropped by 7k to 444k, a reading of 442k was expected. Q1 productivity rose by 3.6%, a 2.7% rise was expected. Q1 unit labor costs declined by 1.6%, a 1.1% decline was expected.

 Upcoming US data:
On May 7th April nonfarm payrolls and unemployment will be released. Nonfarm payrolls are expected to rise by 190k compared to 162k last month with the unemployment rate unchanged at 9.7%. March consumer credit will also be released on May 7th expected at -2.35bln compared to -11.51bln last.

 JPY
Japanese markets reopened for the first time in three days and the Nikkei dropped 3%. JPY  traded sharply higher supported by risk aversion as equity markets continue to decline in reaction to concerns about contagion risk from the Greek debt crisis. JPY was also supported by significant gains in cross trade to Europe and commodity currencies. EUR/JPY traded close to 2% lower with EUR pressured by concern that the EU has not taken enough steps to contain the Greek debt crisis. AUD/JPY traded 2% lower as investors continue deleveraging positions in equity and commodity markets because of fear the Greek debt crisis may be spreading. It’s interesting that the recent strength of the JPY has not sparked threats of intervention from Japan. A Japanese government panel recently called for the BOJ set an inflation target and targets for the JPY. Stronger JPY contributes to deflationary pressures and could slow the recent rebound in Japan’s export sales. JPY direction is expected to trade inversely to equities and risk sentiment.

 On May 6th Japan’s April vehicle sales will be released.

 Key technical levels to watch in USD/JPY include support at 92.40 the April 20th low with resistance at 93.98 the May 6th high.

 EUR
EUR traded at a 14 month low versus the USD pressured by ongoing worries about the Greek debt crisis and heavy selling in cross trade to the CHF. For months the SNB has intervened and threatened to intervene in support of the EUR/CHF cross. The CHF has been in demand from investors seeking safety from the Greek debt crisis. SNB officials fear that appreciation of the CHF would contribute to deflationary pressures in Switzerland. The SNB has been accumulating large amounts in EUR during its intervention and today’s decision to pull this bid may partly reflect the SNB’s decision  that it’s becoming too costly to hold so many EUR’s with the EUR declining every day. Reassuring statements from EU officials failed to support the EUR. EU commission head Barrosso said that he is certain that all European countries will approve the Greek aid package. EU’s Banier said that he does not fear the risk of contagion from Greece. The ECB left interest rates unchanged at 1%. The EUR dropped to a fresh low for the trading session in reaction to the ECB’s decision to hold rates policy steady as the ECB provided no new measures to combat the fallout from the Greek crisis. In the press conference following the ECB rate decision ECB president Trichet said that rates are appropriate, inflation expectations remain well anchored, the economic recovery may be uneven at times but he expects the economy to strengthen in the spring and risk to this outlook is broadly balanced. He went on to say that concerns remain about financial market stress. In the Q&A Trichet said that the ECB did not discuss buying EU bonds or additional quantitative easing measures. Today’s EU economic data continues to point towards firming of the recovery. German March manufacturing orders rose by 0.5%. EUR experienced a bit of stability above 1.27 after S&P announced that it was reaffirming its outlook for the Italian debt outlook as stable and  EU officials have been critical of the credit rating agencies complaining that some of the recent credit downgrades were unwarranted and exacerbate the EU sovereign debt crisis. EUR tried to stage a recovery rally in reaction to a statement from Trichet that Greek default was out of the question.  EUR remains vulnerable to fear of contagion debt risk in Europe. The Greek parliament is expected to vote on the aid package today. The Greek PM said that without the aid package there is no way that Greece could avoid default. The Greek parliament passed the austerity bill.

The technical outlook for the EUR is negative as EUR breaks 1.2800. Expect EUR support at 1.2616 the March 11th 2009 low with resistance at 1.2857 the May 6th high.

 GBP
GBP traded lower pressured by disappointing UK service sector PMI report and UK election uncertainty. UK April services PMI declined to 55.3 from 56.5 last month. The unexpected decline in UK services PMI may spark concern about the strength of the UK recovery. Wednesday the UK reported that construction PMI rose to its highest level in 32 months. Today’s modest decline in services PMI should not generate too much concern about the UK recovery as recent UK data including yesterday’s construction PMI point to strengthening of the recovery and rising inflationary pressures. The UK election is taking place today and there is fear that the election will result in a hung parliament for the first time since 1974. A hung parliament may make it difficult for the UK addresses its record budget deficit. Failure to take quick action to tackle the UK budget deficit could result in downgrade UK AAA debt rating. GBP downside is currently limited by significant gains in cross trade to the EUR as investors flee the EUR because of concern that the sovereign debt risk in the EU is spreading. Investors have become more comfortable with the idea that no matter what the result of the UK election the members of the UK parliament know that it must take action to reduce the deficit. UK election outcome has become less of a negative for the GBP.

 UK national election will be held on May 6th. On May 7th April PPI will be released expected at 3.8% compared to 3.6% last month. The BOE policy meeting will be delayed until May 10th because of the UK election.

The technical outlook for GBP is mixed as GBP struggles to hold above 1.5200. Expect near-term support at 1.4893 the March 29th low with resistance at 1.5265 the May 4th high.

 CAD
CAD traded lower pressured by a spike in risk aversion, and weaker equity and commodity markets. CAD downside was limited by a strong Canadian builders permit report. Fear of a debt contagion from the Greek fiscal crisis has encouraged investors to the de-leverage positions in growth led and commodity-based currencies. Crude oil prices dropped below $80 a barrel Thursday. Fear that growth is slowing in China contributes to selling pressure of commodities. Sunday, China hiked its bank reserve ratio by 50bps for third time this year and Monday China reported a slowing in its manufacturing sector. The Shanghai index dropped 4% Thursday on concern about slowing growth in China. Canada’s building permits surged 12.2% in March, a 0.9% rise was expected. Strong Canadian housing data was offset by Greek debt contagion fear and report of a dip in Canadian small business confidence. Canada’s small business confidence declined to 66.4 from 69.9 last month. April Ivey PMI came in above expectations at 58.7 compared to 57.8 last month, a reading of 56.8 was expected. There was limited reaction to a statement from Canada’s Finance Minister Flaherty that he does not think the Greek crisis is a direct threat Canada but he fears it will hurt other countries. If the Greek debt contagion spreads to other countries it could eventually slow the global recovery and hurt the outlook for Canadian export sales. Focus turns to Friday’s release of US and Canadian employment data. Investors will be looking closely at the employment growth component of the Canadian report for clues to the strength of the recovery and to gauge the possible risk of an earlier BOC rate hike.

On May 7th April unemployment and employment growth will be released. The unemployment rate is expected at 8.1% compared to 8.2% last month with employment growth at 25k compared to 17.9k last month.

 The technical outlook for CAD is negative as USD/CAD trades above 1.0200. Look for near-term support at 1.0232 the May 5th low with resistance at 1.0408 May 6th high.

 AUD
AUD traded lower pressured by declining equity and commodity markets and rising risk aversion sparked by fears of debt contagion risk in Europe and slowing growth in China. Investors are liquidating holdings of stocks, commodities and high-yield currencies because of lack of confidence that EU officials can contain the spread of the Greek fiscal crisis. AUD is also weakening in reaction to concern about slower growth in China and speculation that the RBA will pause its tightening cycle. China reported that manufacturing growth slowed in March. The Shanghai index declined by 4% Thursday. China is a major export destination for Australia and slowing growth in China could hurt the Australian recovery. AUD was also pressured by report of weaker than expected Australian retail sales. Australia’s Q1 retail sales rose by 0.1%, a 0.8% rise was expected. Australia’s March trade balance narrowed -2.08bln from -2.2bln last month. The RBA hiked interest rates 25bps to 4.25% Tuesday. In a statement following the RBA rate hike, RBA Governor Stevens suggests that Australian interest rates were near the average. This statement by Stevens suggests that the RBA is considering a pause in its rate hike cycle. AUD direction is expected to continue to track equities and commodities. AUD remains vulnerable to diminished RBA rate hike speculation.

 On May 7th Australia is monetary policy report would be released.

 The technical outlook for the AUD is negative as the AUD breaks below 9100. Expect AUD support at 8935 the March 1st low with resistance at 9118 the May 5th high.

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