Key Points
USD holds in well overnight, retaining upside liquidation risk.
EUR-USD downside would open up below 1.3440-60.
IMM net EUR-USD longs at new record high.
Quiet data schedule ahead of next week's manufacturing ISM and employment report
CAD momentum still intact after Friday's break - support on USD-CAD at 1.0750-75.

Market Outlook
The decision by Kuwait over the weekend to drop the USD peg in favour of a basket of currencies weighed on the USD at the Asian open, but it has since bounced back, with other countries in the region stating that they did not plan to follow suit (although the UAE has yet to comment). The Kuwaiti decision owes much to the rising inflation backdrop due to recent USD weakness.

There is a quiet week in prospect for news releases with durable orders, new home sales and existing home sales featuring in the US and a number of business surveys such as IFO and ZEW due in the Eurozone. It seems unlikely that any of these releases will significantly change market sentiment about respective outlooks for ECB and Fed policies. Last month's stronger ISM surveys have been at the foundation of the recent hardening in US rate expectations and essentially the market has been waiting ever since to see whether such improvements are genuine and have been sustained. There has been some element of support to the stronger picture painted by the ISMs, e.g. in the slightly firmer Fed surveys seen last week, but the market will most likely prefer to wait and see.

The ISM for manufacturing is not due until Friday next week (June 1), while the ISM for non-manufacturing is due on Monday June 4. The employment report is also out on June 1 and has itself become more interesting after the recent improvements seen in the weekly jobless claims numbers. The 'continuing claims' number due on Thursday will be for the same week as the survey week for payrolls and any strength or weakness could affect sentiment on the actual employment report. The market is likely to remain hesitant about taking a fresh view about the US until next week's data, but such hesitancy could yet turn into further liquidation of short USD positioning and there is a good chance of this happening over the coming week or so. Latest IMM data showed net spec EURUSD longs advancing to a new record high of 119,568 contracts as of last Tuesday, up from 105,270 the previous week. 1.3340 could be seen during this period, with a break of 1.3440-60 likely to be the trigger for such selling. The levels mentioned on Friday about the USD index are also still relevant. 82.40 (which held again on Friday) and 82.60 need to break to suggest a further significant improvement in short-term USD prospects.

UK M4 data came out on the strong side of expectations, although money and mortgage lending were steady and market impact was limited. The market is waiting for Wednesday's MPC minutes. EUR-GBP looks well contained between 0.6820-70, while cable has downside risk to 1.9550-1.9600.

Following Friday's break to a fresh 29-yr low, USD-CAD momentum looks like taking it lower still in the short-term. Further weakness has been seen this morning (helped by ongoing strength in oil prices), although 1.0750-75 should hold for now and some consolidation could then be seen over coming weeks between 1.0750-1.1000. The tone of next Tuesday's BoC rate announcement will influence how the situation progresses from there. There are no further Canadian economic releases due before the BoC decision.

Diary
Data/event EDT Consensus*
CA Market holiday 
Latest data Actual Consensus*
GB Rightmove house prices (May) y/y 13.1% 15% last
GB M4 (Apr) y/y 13.3% 12.4%
GB M4 lending (Apr) y/y 12.9% 13.5% last
GB BBA mortgage lending (Apr) ?5.0bn ?5.1bn last
GB PSNCR (Apr) -?3.8bn -?1.5bn
* Consensus unless stated