Key Points
JPY still weak but global markets are a potential danger.
EUR-USD remains range bound.
Canadian CPI, US jobless claims, Philly Fed survey, Bernanke speech on mortgages feature today.

Market Outlook
Yesterday's US housing data provided little comfort for those looking for signs of a bottom in the market. The evidence of stabilisation in housing starts remains tentative, while permits fell to a fresh 10-yr low. However, with the consumer holding in well and the latest ISM data suggesting that manufacturing may be shrugging off the effects of weaker residential investment, the market is unwilling to get too pessimistic. In combination with the fact that the market is already well positioned for USD weakness, this factor is providing support to the USD and should continue to do so in the short-term unless some fresh disappointments are seen on economic activity indicators. The real test will be whether next month's ISMs can sustain the improvements seen this month, although reports such as today's Philly Fed survey will carry interim importance.

EUR-USD remains well entrenched within recent trading parameters, with the main levels of importance coming in at 1.3460 and 1.3680. 1.3550-60 will carry some significance today ahead of 1.3610-30, while below 1.3500 would suggest a test of 1.3460.

An ongoing theme of the past few days has been JPY weakness and last night's solid but unspectacular Japanese GDP number does not threaten such sentiment. EUR-JPY remains close to recent highs, while yesterday's USD-JPY move above 120.60 was significant. There remains some scope for further JPY weakness in the short-term (USD-JPY has room up to the Feb high of 121.75). However, this may not be that dramatic and the risk of chasing JPY weakness is that reversals will be sharp on any sign of retrenchment in global markets. Selling the JPY at times of corrective activity still seems the best way to play JPY weakness.

Day Ahead
Canada - strength in core CPI a couple of months back was a factor in the recent recovery in rate expectations, but this eased back a little last month and remains at a level ( 2.3%) which is not that threatening. The BoC has a target range for CPI of 1% to 3% and aims to target the mid-point of this range over time. 2.5% or higher is needed to trigger fresh alarm.

US - the Philly Fed survey will be significant in terms of whether it corroborates the strength seen in the latest ISM number. The NY Fed index released earlier this week rose to a 3-mth high, but the Philly Fed number is likely to be watched more closely, as it is less volatile and more reliable than the NY Fed version. There may also be some focus on the 'prices received' component after the sharp rise in that category seen in the NY Fed survey. In the Philly Fed survey, the 'prices received' category has been subdued of late. Weekly jobless claims data is also due and it will be interesting to see whether recent improvements have been sustained. Last week, the 4-week average for initial claims (317.3k) was close to the recent low of 316.3k seen in March. Bernanke is due to speak on sub-prime mortgages and his comments will be watched closely. However, it seems unlikely that he will be interested in creating any fresh panic over the issue.

Diary
Data/event BST Consensus*

Market holiday - Norway, Denmark, Sweden, Switzerland
 
EU ECB monthly report 09.00 
CA CPI (Apr) y/y 12.00 2.1%
CA BoC core CPI (Apr) y/y 12.00 2.4%
US Initial claims (w/e May 12) 13.30 315k
US Continuing claims (w/e May 5) 13.30 2555k last
CA Wholesale sales (Mar) m/m 13.30 0.5%
US Fed's Bernanke spks on sub-prime mortgages 14.30 
US Lead indicators (Apr) m/m 15.00 0.0%
US Philly Fed index (May) 17.00 3.5
Latest data Actual Consensus*
JP GDP (Q1 1st est) q/q 0.6% 0.7%
AU Average wages (Q1) q/q 1.1% 0.7% last
* Consensus unless stated