Key Points
The tone of key US data releases this week will be critical for short-term USD direction.
JPY likely to remain subdued.
Eurozone M3, business climate indicators, CPI, UK consumer confidence, US core PCE prices and Chicago PMI feature today.

Market Outlook
A fairly quiet night session with Japan away on holiday, although the corrective tone of Friday has not yet lifted and there would be a risk of this developing further if 1.3585 breaks on EUR-USD. Latest IMM positioning data (net spec EUR-USD longs up to a new record of 111,282 contracts from 106,770) is evidence of the corrective risk in place.

However, of ultimate importance this week will be whether the tone of key US releases like the ISM surveys and the employment report offer support to such positioning. Any fresh weakness in the US data will be USD negative, especially with rate expectations remaining firm in the Eurozone. Any surprising strength would spark corrective pressure.

The JPY is off the lows seen last week although a major recovery will be difficult in the short-term. If a USD corrective mood does develop this will most probably weigh on EUR-JPY and GBP-JPY, but in such circumstances USD-JPY would probably advanced beyond 120.

Day Ahead
Eurozone - data features for the Eurozone include the latest money numbers, business climate indicators and the flash estimate of April CPI. M3 has been strong of late, while the y/y rate on private sector lending has been easing back a little. The latter is not surprising as the y/y rate calculation is being conducted with reference to a time last year when m/m rises in lending were particularly sharp. Such base effects are difficult to offset and should ensure a further easing in the y/y rate this month and next. However, it would be wrong to conclude that lending is actually weak. CPI always carries some marketmoving potential, but it has been steady around 1.8% or 1.9% over the past five months. The business climate indicators are likely to confirm the solid activity backdrop.

UK - consumer confidence is out and this has been subdued over recent months, with the latest reading of -8 not far from the lows seen in recent years of -9 in Dec 2005 and -10 in Mar 2003 (Iraq war). The data shows that while spending has been holding in fine, at least so far, confidence is fragile.

US - core PCE prices are out today and on the basis of what was seen in Friday's quarterly GDP data a soft number looks likely. Chicago PMI is also out and will have an impact on expectations about the full ISM tomorrow. However, Chicago PMI has been volatile and out of sync with the ISM over the past two months.

Diary
Data/event BST Consensus*
 
EU M3 (Mar) y/y 09.00 9.7%
EU M3 (Mar) 3m y/y 09.00 9.8%
EU Private sector lending (Mar) y/y 09.00 10.3% last
GB BBA mort approvals (Mar, nsa) y/y 09.30 -5%
EU CPI (Apr, flash est) y/y 10.00 1.8%
EU Econ sentiment (Apr) 10.00 111.7
EU Business climate index (Apr) 10.00 1.60
IT CPI (Apr, prel) y/y 10.00 1.6%
GB Consumer confidence (Apr) 10.30 -8
ZA Trade balance (Mar) 13.00 -Z4.2bn
US Personal income (Mar) m/m 13.30 0.6%
US PCE (Mar) m/m 13.30 0.5%
US Core PCE price index (Mar) m/m 13.30 0.1%
US Core PCE price index (Mar) y/y 13.30 2.2%
CA GDP (Feb) m/m 13.30 0.2%
US Chicago PMI (Apr) 14.45 54.0
Latest data Actual Consensus*
AU Private sector credit (Mar) m/m 1.2% 1.1%
DE Retail sales (Mar) m/m -0.7% 0.8%
* Consensus unless stated