Key Points
Downside risk remains on EUR-USD.
GBP remains well supported and UK CBI prices will be a concern for the MPC.
Cable will also be driven by the tone of today's US data.
US durable orders, jobless claims, new home sales, Japanese CPI due.

Market Outlook
Yesterday's comments from Greenspan have continued to weigh slightly on equity and emerging markets overnight, but it seems unlikely that his comments will present a major turning point for global market sentiment. The JPY has also been slightly firmer and while tonight's Japanese CPI data will carry much significance, some corrective risk is now developing on EUR-JPY. However, below 162.60-85 is needed to trigger a further pullback towards 162.00 ahead of 161.10.

EUR-USD has again turned lower this morning. Yesterday's cable-related boost failed to attract any follow-through and overall liquidation pressure has again been the dominant factor. The downmove had already been seen before the German IFO number was released. This was slightly below expectations, but is still close to post-unification highs and cannot exactly be termed as weak. Today's US data releases (see below for preview) will be of greater significance to the price action today. Downside risk remains in place on EUR-USD.

Cable has also been more subdued this morning, but is currently holding on to most of yesterday's gains. There was little immediate reaction to the CBI survey, even though this was in some ways more hawkish than yesterday's MPC minutes. The CBI output price expectations balance rose to 25 from 16 last time, with 25 being the highest reading since March 1995. The MPC is currently very focused on producer output prices, given that they should be a good lead indicator of future CPI pressures, so evidence of output price strength in the CBI survey will add to inflation concerns. As one can see from the chart, there is a reasonable correlation between CBI prices and the official measure of core output prices. EUR-GBP looks like maintaining a weaker bias while it stays below 0.6780 (that level having broken yesterday). Next support is at 0.6750-55. Yesterday's high at 1.9894 is first resistance on cable. US data today will also be significant for how cable develops in the very short-term. Downside favoured.

Day Ahead
US - durable orders, new home sales and weekly jobless claims are due today. The main feature could be the weekly claims numbers after the improvements seen in recent weeks. Today's data will show initial claims for the week ending May 19 and continuing claims for the week ending May 12. The week including the 12th day of the month is the one used in the survey for the payroll numbers, so any strength or weakness in continuing claims (in addition to the robust performance already seen in initial claims for the week-ending May 12) will affect sentiment about next Friday's employment report. Core durable orders categories will be gauged for further signs of stabilisation in the manufacturing sector, while the home sales numbers will be watched somewhat nervously after the weakness seen in Q1. New home sales actually bounced back 2.6% in March, although this came after falls of 14.4% and 4.2% in Jan and Feb respectively.

Japan - CPI data is due tonight and the market is looking for a rebound in the y/y rate on CPI ex-fresh foods up to -0.1% after the weak -0.3% seen last month. The CPI ex-food and energy rate will also be watched having fallen to -0.4% last month (lowest since October last year). The JPY will be responsive to any unusual developments, although the BoJ has been seeking to nullify the effect that weaker CPI numbers could have on rate expectations.

Diary
Data/event  EDT  Consensus* 
US Durable orders (Apr) m/m 08.30 0.9%
US Durables ex-transport (Apr) m/m 08.30 0.5%
US Initial claims (w/e May 19) 08.30 303k
US Continuing claims (w/e May 12) 08.30 2473k last
BE Business confidence (May) 09.00 4.0
US New home sales (Apr) 10.00 860k
JP CPI Tokyo ex-fresh food (May) y/y 19.30 0.0%
JP CPI Nat ex-fresh food (Apr) y/y 19.30 -0.1%
JP CPI Nat ex-food & energy (Apr) y/y 19.30 -0.4% last
Latest data  Actual  Consensus* 
NZ Trade balance (Apr) -NZ$212m -NZ$13m
JP Trade balance (Apr, sa) ?1027bn ?802bn
DE GDP (Q1, final) q/q 0.5% 0.5%
FR Own company ind outlook (May) 10 14
FR Business climate indicator (May) 109 111
SE Unemployment rate (Apr, nsa) 4.6% 4.6%
IT Business confidence (May) 96.2 97.7
DE IFO index (May) 108.6 108.8
DE IFO current (May) 112.5 113.5
DE IFO expectations (May) 104.8 104.5
GB Business investment (Q1) q/q -1.3% 1.9%
CH ZEW expectations (May) 0.0 1.5
GB CBI price exp'n balance (May) 25 16 last
GB CBI orders balance (May) 5 2 last
* Consensus unless stated