Key Points
Downside risk remains on EUR-USD.
GBP showing resilience ahead of today's MPC minutes - liquidation pressures less severe than on the EUR.
Fresh impetus needed to inspire further JPY weakness.
Norwegian GDP, UK MPC minutes feature today - Japanese trade data tonight..

Market Outlook
Very little has changed over the past 24 hours. The market is still waiting for further information on the state of the US economy, with next week's ISM manufacturing and employment reports the major points of interest. In the meantime, tomorrow's durable orders, weekly jobless claims and new home sales and Friday's existing home sales will have the potential to influence USD sentiment further.

We still suspect that the FX market has not fully adjusted to the reduction in pessimism about the US economy and more movement in this direction (i.e. liquidation of existing USD shorts) seems likely in the short-term. How far this ultimately develops will depend upon the ISMs and the employment report. There is some risk to 1.3340 on EUR-USD ahead of these releases next week.

GBP has been showing resilience over the past 24 hours, with yesterday's weakness in EUR-USD being felt through EURGBP rather than cable. This could be due to the fact that long positioning on cable is not as excessive as it is on EUR-USD, while the approach of today's MPC minutes may also be a supporting factor. In a corrective environment GBP still has scope to outperform the EUR, although if today's minutes fail to feed money market hawkishness any further, EUR-GBP could yet rise a little. However, a move back above 0.6825 is required to remove the softer bias now in place, and until this happens there will be some residual downside risk to 0.6780-85. Today's minutes are previewed below.

Ongoing buoyancy in global asset markets continues to weigh on the JPY, although some added impetus is required to weaken it another notch. Above 164 on EUR-JPY or 122.20 on USD-JPY are the levels that need to break to do this and this could remain difficult ahead of Friday's CPI data.

Day Ahead
Norway - GDP data for Q1 could have some influence on Norges Bank policy sentiment, but only if well away from market expectations. A fair amount of tightening is already in the market and most other data releases support such expectations. However, given how well established such opinion is, the greater shock would be weak data. 8.1250 and 8.1060 are the supports that need to break on EUR-NOK to instigate some downside interest, while 8.16 is resistance.

UK - MPC minutes will be scoured for more clues on policy and the central message is likely to be of an MPC that still has a tightening bias, as suggested in the latest Inflation Report. There could be two or three camps in the voting outcome. Blanchflower is likely to have dissented with an unchanged rate vote, as he has never voted for a rate hike and voted for a cut as recently as March. The other point of interest will be whether the two hawks, Besley and Sentance, voted for a 50bp rather than a 25bp hike.

Japan - trade data is due in Japan tonight and this is likely to confirm the strong export trend that has essentially been in place for two years (see chart). However, market focus is more directly on Friday's CPI data.

Diary
Data/event BST Consensus*
 
NO GDP - total (Q1) q/q 09.00 1.1%
NO GDP - mainland (Q1) q/q 09.00 1.0%
IT Retail sales (Mar) m/m 09.00 0.2%
GB MPC minutes (May 2-3 meeting) 09.30
EU Manu orders (Mar) m/m 10.00 1.0%
US Mortgage apps - purchases w/w 12.00 -1.4% last
CA Leading indicator (Apr) m/m 13.30 0.4%
NZ Trade balance (Apr) 23.45 -NZ$13m
JP Trade balance (Apr, sa) 00.50 ?802bn
Latest data Actual Consensus*
US ABC consumer conf (w/e May 20) -9 -7 last
JP All-industry index (Mar) m/m -1.4% -1.4%
* Consensus unless stated