Global FX Daily (European)
Key Points
EUR-USD showing some resilience ahead of today's ECB meeting, but downside remains favoured.
US data today and tomorrow will be one factor determining how far this correction runs.
More strong data out of Australia.
Norwegian/Swedish CPI, UK MPC meeting, UK manu output and trade data, US trade, Canadian trade also feature today.

Market Outlook
An uneventful FOMC statement weighed on EUR-USD initially but it has picked up a little in early European trading, moving close to yesterday's high at 1.3565, which is initial resistance today ahead of 1.3590. The resilience of EUR-USD is due in part to today's ECB meeting and the focus on the likely confirmation by Trichet of the ECB's intention to raise rates next month. However, this is already well known to the market and if he fails to deliver anything more hawkish than this EUR-USD would be in danger of falling back to the current main support area at 1.3460-1.3500 - our favoured scenario. Whether such support breaks will also depend upon the tone of tomorrow's US retail sales data, while today's US trade number could also influence matters. Below 1.3460 would leave risk down to 1.3340. The UK MPC meeting is also a major focal point today (see below).

Another batch of strong data out of Australia last night (this time relating to the labour market) reinforces the risk of an RBA rate hike in the next few months. The latest CPI numbers may have been soft, but all of the data the RBA would typically monitor for clues about medium-term inflation pressure are strong at the present time. The AUD moved ahead on the news, but is currently facing decent resistance at 0.8340-60 and 0.8380- 0.8400. On a longer view the AUD still looks set to advance further, but in the short-term it could pull back if the USD advances in general.

Norwegian and Swedish CPI data is due and anything out of the ordinary could affect the NOK and the SEK. Norwegian core CPI has been moving higher in recent months, ( 1.5% in Mar compared to 0.7% in Oct and 1% in Jan) and any further strength will merely reinforce the higher rate expectations that are already well established. In Sweden, core CPI has been steadier, but anything unusual will affect policy expectations, which have been volatile of late. EUR-SEK has risen over the past couple of days with prior short positioning being trimmed a little ahead of today's ECB meeting. However, resistance at 9.23 and 9.25 should be solid and if, as we believe, the ECB meeting today merely confirms the current market expectation of a rate rise next month, EUR-SEK should fall back again over the coming week.

Day Ahead
Eurozone - the ECB meeting is likely to see policy being left unchanged, but Trichet is likely to send a strong signal about the likelihood of a rate hike in June. Such an outcome should be well anticipated by the market.

UK - a 25bp MPC rate hike is well discounted at today's MPC announcement and given the fears that have developed this week about the risk of a 50bp move, GBP will most likely soften if only 25bp is delivered. There will also be interest in the tone of the accompanying statement. However, on occasions of recent rate hikes the statement has been restricted to explaining why rates have been raised (typically in noncontroversial fashion) as opposed to giving any indications about the future. BoE governor King did say last week that the MPC would review the way it communicates with the market, but in the absence of a fresh approach the market will most probably have to wait until next week's Inflation Report for firm clues on policy in the second half of the year. The official manufacturing and trade deficit reports are also out today. Manufacturing has been weak over recent months and inconsistent with the generally upbeat showings seen in the various business surveys, so there will be some interest in what the latest data shows. The trade deficit always carries some market-moving potential but it is a volatile animal.

US - the trade deficit has been stabilising in recent months and whether or not this can be sustained will be a potential issue for the USD. Weaker imports (primarily due to softer oil prices) and solid exports have been the main reason for the deficit stabilisation since the middle of last year, although this could be reversed a little at some point given the rebound in oil prices seen in February and March.

Canada - trade data is due and the market will be looking at the export data for an indication of how the external sector has been affecting the economy. The market is on high alert for any news that will boost rate hike expectations, although the trade reports seen so far this year have shown exports weakening after a strong Q4. USD-CAD has shied away from 1.1000, which is current support. A move below 1.1040 would suggest a retest of 1.10, while above 1.1100 would indicate the likelihood of some further short-term stabilisation

Diary
Data/event BST Consensus*
 
SE CPI (Apr) y/y 08.30 1.8%
SE CPI UND1X (Apr) y/y 08.30 1.1%
SE AMS Unemp rate (Apr, nsa) 09.00 3.7%
NO CPI (Apr) y/y 09.00 0.7%
NO CPIX (Apr) y/y 09.00 1.6%
IT Ind prod (Mar) m/m 09.00 0.7%
GB Ind prod (Mar) m/m 09.30 0.4%
GB Manu output (Mar) m/m 09.30 0.5%
GB Global trade balance (Mar) 09.30 -?6.7bn
GB Non-EU trade balance (Mar) 09.30 -?4.1bn
GB MPC rate announcement 12.00 25bp
EU ECB meeting outcome 12.45, press conf 13.30 unch
US Trade balance (Mar) 13.30 -$60.0bn
US Initial claims (w/e May 6) 13.30 315k
US Continuing claims (w/e Apr 29) 13.30 2495k last
US Import prices (Apr, nsa) y/y 13.30 2.8% last
US Imp prices ex-petrol (Apr, nsa) y/y 13.30 2.9% last
CA Trade balance (Mar) 13.30 C$5.5bn
CA New house prices (Mar) m/m 13.30 0.5%
US Federal budget (Apr) 18.30 $145bn
GB NIESR GDP (3mths to Apr) q/q 00.01 0.5% last
Latest data Actual Consensus*
US FOMC meeting outcome unch unch
NZ Unemployment rate (Q1) 3.8% 3.8%
JP M2 plus CDs (Apr) y/y 1.1% 1.1%
JP Bank lending (Apr) y/y 1.0% 1.0% last
NZ PMI manu (Apr) 54.2 56.8R last
AU Employment (Apr) 49.6k 12.5k
AU Unemployment rate (Apr) 4.4% 4.5%
DE WPI (Apr) y/y 2.9% 2.6%
FR Ind prod (Mar) m/m 0.2% 0.3%
FR Manu output (Mar) m/m -0.1% 0.4%
FR Trade balance (Mar) -?1.6bn -?2.7bn
GB HBOS house prices (Apr) m/m 1.1% 0.8%
* Consensus unless stated