Key Points
Stronger global markets fail to seriously undermine CHF or JPY, suggesting momentum loss.
EUR-USD becalmed ahead of key US releases - downside risk remains.
AUD boosted by strong credit data.
Heavy data release schedule today (see Diary box).

Market Outlook
Global equity markets are forging ahead, having firmly shrugged off yesterday's negative impulse from China, although while EUR-JPY has moved away from the lows seen over the past 24 hours, it remains well shy of the recent highs. USD-JPY has also remained quiet, while the CHF continues to look better supported against the EUR. Once again there seems to be some evidence of momentum loss in these types of trades, but the truly destructive price action needed to disrupt positioning has not developed as yet. Key supports on EURJPY are at 162.60 and 162.20, while USD-JPY support is at 121.10 ahead of 120.80.

The CHF is also receiving some support from the stronger than expected Q1 GDP data released this morning, although unless it translates into a stronger policy message from the SNB, this in itself will not be enough to reverse current sentiment. Key for EUR-CHF is support at 1.6445. If this breaks, it would be a negative price signal, suggesting initial risk down to 1.6340.

EUR-USD has been quiet, with the market still waiting for tomorrow's key US releases (ISM and employment report). Risk remains to the downside, although today's data could influence sentiment slightly (see below for preview).

Australian data (private sector credit and capital expenditure) was stronger than expected. The rise in credit growth will be a particular concern to the RBA, as it suggests that the higher rates pursued thus far have not penalised behaviour that is sensitive to rates. Indeed, the trend growth rate in credit seems to have moved up a notch since the turn of the year. The 3-mth average for the m/m growth rate has stood at 1.2% for the past two months, the first time this has happened since May/June last year. 0.8270 is the immediate resistance area on AUD and is at some risk today but should just about hold ahead of tomorrow's key US releases. 0.8325 is the next resistance above 0.8270.

Day Ahead
Eurozone - German labour market numbers for May are due this morning and underlying labour demand should be proceeding fairly well at the current time given the buoyancy in economic activity. However, seasonal factors have been affecting the data in recent months. The seasonal adjustment process adjusts for sharp job losses during the winter months and then subsequently adjusts for the rehiring that typically follows in the spring. However, this year's mild winter meant that job shedding was not conducted on the same scale (hence the sharp falls in seasonally adjusted unemployment during the Nov-Feb period) and also that rehiring in the spring was also limited, accounting for the very small fall in adjusted unemployment in April. While one would expect any distortions from the winter to be long gone by May, there are still hefty seasonal factors at work in today's data. The May adjustment factor in the past two years has been to add around 160k back on to the raw unemployment number, to adjust for the sharp fall in unemployment typically seen during the month. In sum, few will have confidence that any weakness today will be genuine, but a strong number would be a sign of underlying strength.

UK - consumer lending, mortgage approvals consumer confidence and CBI retail sales are all due this morning and the market will be sensitive to any uniform picture that arises from the reports. Media coverage about the housing market has been more negative over the past week or so, especially with regard to reports about an upturn in buy-to-let investors looking to sell. Mortgage approvals will show how far demand is drying up. This seasonally adjusted version of mortgage approvals for all lenders was softer last month, falling back to 113k, the lowest seen since April 2006, although something closer to 100k or lower will be needed in the months ahead to suggest that demand is starting to fall significantly. CBI retail sales for May are due and this survey has been strong in recent months. However, the strength in April was not replicated in the official sales data and with the May weather also turning cooler a weaker CBI number looks likely.

Eurozone - business sentiment indicators today are likely to remain robust, while anything unusual on the flash estimate of May CPI could influence sentiment ahead of next week's ECB meeting. This would not relate to the 25bp rate hike that seems a given, but the rhetoric the ECB could adopt with regard to risks in the second half of the year.

US - the 2nd estimate of Q1 GDP will likely be depressed by downgrades to both net exports and inventories, although being for Q1 it may be seen as outdated, especially in view of the more recent signs of improvement in other data. Weekly claims numbers will be viewed with interest after the numbers seen in recent weeks. Last week saw a rebound in claims after several weeks of lower numbers, which had sparked some optimism about the labour market. Chicago PMI is also due today and may influence sentiment about the ISM manufacturing outcome, although the two have not been well correlated over the past three months.

Canada - GDP data for March and Q1 is due today and the Bank of Canada has already indicated that growth was probably around 3.5%, close to the market consensus, so the report should not really add to market thinking. USD-CAD has fallen back in early European trading and key supports today are 1.0710 and 1.0686. Any break of these supports will suggest that current momentum remains intact and that losses can extend towards 1.0500. If they hold there could be some consolidation given that the market is already well short of USDCAD.

Diary
Data/event BST Consensus*
 
DE Unemployment (May) 08.50 -21k
NO Retail sales (Apr) m/m 09.00 0.2%
NO Unemployment rate (May, nsa) 09.00 1.9%
GB Consumer credit (Apr) 09.30 ?0.9bn
GB Net lending secured on dwellings (Apr) 09.30 ?9.7bn
GB Mortgage approvals (Apr, sa) 09.30 110k
EU CPI (May, flash est) y/y 10.00 1.9%
EU Econ sentiment (May) 10.00 111.0
EU Business climate index (May) 10.00 1.61
IT CPI (May, prel) y/y 10.00 1.5%
GB Consumer confidence (May) 10.30 -7
GB CBI retail trades survey (May) 11.00 44 last
ZA Trade balance (Apr) 13.00 -ZAR4.0bn
US GDP (Q1, 2nd est) saar 13.30 0.8%
US Core PCE prices (Q1) saar 13.30 2.2%
US Initial claims (w/e May 26) 13.30 310k
US Continuing claims (w/e May 19) 13.30 2529k last
CA GDP (Mar) m/m 13.30 0.5%
CA GDP (Q1) saar 13.30 3.6%
US Chicago PMI (May) 14.45 54.0
Latest data Actual Consensus*
FR Unemployment rate (Apr) 8.2% 8.2%
FR ILO job seekers (Apr) m/m -20k -20k
JP Labour cash earnings (Apr) y/y -0.7% 0.1%
JP Overtime earnings (Apr) y/y 0.7% 0.2% last
AU Trade balance (Apr) -A$962m -A$800m
AU Private sector credit (Apr) m/m 1.2% 1.1%
AU Private new capex (Q1) q/q 9.1% 4.0%
NZ Business confidence (May) -48.2 last -19.4 last
CH GDP (Q1) q/q 0.8% 0.6%
GB N'wide house prices (May) m/m 0.5% 0.6%
* Consensus unless stated