$ Ready to the rally as stimulus fading hopes, risk trends Schauder

fundamental Outlook for US-dollar: bullish
The Dow Jones FXCM dollars index managed a respectable 1.1 percent rally in the last week on a combination of disappointing data, euro weakness and a fading stimulus of Outlook (for the fed and the global central banks). However this growth only deletes the losses of the previous week and remains, confirmed the next stage of the gradual climb, which began in scale for the currency in August. This corresponds perfectly to the underlying fundamental landscape for risk trends. Change where disappointing economic and financial developments comfortably were overlooked with the expectation, that would be an important political body in we offer a time step and a shot of short-term stimulus. Faith, which is a fast alternative on the horizon (or which would provide an additional program even the temporary highs of earlier songs) deteriorated rapidly; and the reality of the current level of risk return will shock with speculative benchmarks at the recent highs.
Thus the leap from sporadic and temporary rallies to a run with conviction of the market must provide the primary strength of the dollar: his role as an absolute emergency solution for safety and liquidity. The was has always been a difficult position, bearing in mind that authorities had a vested interest had policy of maintaining financial stability and growth (with maybe a spirit to lift as well as the wealth effect) to support support. In other words, it seems that we are starting to reach the limits of what the central banks and others who are capable. Stimulus students had the wind knocked expectations are out of them a few weeks back, when the Fed refused QE3 and offered system instead a smaller version of the operation twist (now short-term speculators and lower, long-term rates supported).
Stimulus hopes dried up really the last two weeks but. Summit offered hope that a vaccine that could - was the greatest threat to global markets (the euro-zone financial and debt crisis) if not cure the problem, then prevented the transfer. However, has their doubts with European solutions after two years of consistent disappointment. With the details of the EU bailout noticeably absent, traders were doubtful and then downright cynical, if the ECB not to supplement the gap in the implementation for appeal. Make the situation offered far less for mood (and thus more attractive to the safe haven dollar) is the reality that we were still suffered a round of accommodation and atmosphere. The fed the operation twist 2, ECB rate cut, list rate cut and BoE increase in bond purchases represent an impressive collective effort. Still find we carry currencies, shares and the patient NULL-euro under pressure.
Through the last month there was with many negative economic and financial developments that individually could have crippled confidence, but the potential that collect the next policy (fed, ECB, EU, China, etc.) support could blow many hands remained. That disables the ECB rate decision and wait - and -influence which that there NFPs June, predict some events, that the necessary influence still hope can help. On Monday, which convene Finance Ministers of the eurozone (probably the agreements of the Summit a week-and a-half to discuss), but it is unlikely to make progress on the critical programs in addition to the activation of the ESM.
Keep without the promise of stimulus dealer must only concrete foundations, to work with. On the basis of the markets the risk reward ratio on a strong inclination is the current capital market, levels of dramatic contrasts. A composite of the majors' 10 year government bond yields (Foundation returns for speculative investment) is set directly to a record low in early June. And while volatility readings are still relatively low, the prospects for growth, returns and fewer outlets for the safety of a breeding ground for panic. To offer combustible spark looking catalysts in this situation we have Chinese 2Q GDP set the pace for the major economies on Friday and the beginning of the 2Q US result session. In the imagination of the strong growth for the economy and thus large dividends, revenues were supplemented by cost-cutting and clever bookkeeping. Investors and analysts expect that coming very soon to a disturbing end. JPMorgan the report will be on Friday a particularly interesting to read given, his performance of the banking sector and the intense control, they see were, but Alcoa will report on Monday. the first blue-chip-JK

Crude Oil, Gold at Risk as Federal Reserve Disappoints Stimulus Hopes

Crude Oil, Copper Likely to Follow Stocks Lower as Fed Withholds QE3 Gold and Silver to Decline Amid Receding Demand for an Inflation Hedge All eyes are on the Federal Reserve monetary policy announcement as global economic growth concerns retake the spotlight from fears of a sudden rupture in the Eurozone after the weekend’s pro-bailout outcome to the Greek general election. With Europe expected to sink into recession while Asia sees its slowest growth since 2009 (according to a survey of economists polled by Bloomberg) this year, traders are looking to the US to offer a counterbalance.
With US Treasury yields already near record lows, the likelihood that more QE can generate a substantial increase in lending seems implausible. Meanwhile, Ben Bernanke has explicitly said it would be “very reckless” to seek a pickup in economic activity at the expense of higher inflation, meaning a QE3 program that amounts to little more than a confidence-building exercise is unlikely.
Still, US economic data has increasingly underperformed over the past two months, meaning a reboot of the so-called "Operation Twist" - a scheme meant to target a reduction in long-term borrowing costs in place since late September - and perhaps another extension of the time period within which rates are pledged to be kept low seems appropriate.
On balance, this would amount to a reinstatement of the status quo considering Operation Twist is due to expire this month. With markets pining for accommodation, this is likely to disappoint investors and drive risk aversion, sinking growth-geared copper and crude oil prices. Gold and silver are also vulnerable amid receding demand for precious metals as a store-of-value hedge against dilution of paper currencies.
WTI Crude Oil (NY Close): $84.03 // +0.76 // +0.91%
Prices continue to tread water between the 23.6% Fibonacci expansionat 81.07 and the June 7 high at the 87.00 figure. A break higher initially exposes 90.14. Alternatively, a push through support targets the 38.2% expansion at 77.34.

 Daily Chart - Created Using FXCM Marketscope 2.0
Spot Gold (NY Close): $1618.52 // -9.55 // -0.59%
Prices pulled back to retest the 61.8%Fibonacci retracementat 1616.23, a barrier reinforced by former resistance at a falling trend line set from early March. A break below here exposes the 1600/oz figure. Near-term resistance remains at 1637.35, the 76.4%Fibonacci retracement, with a break above that exposing the May 1 high at 1671.49.

 Daily Chart - Created Using FXCM Marketscope 2.0
Spot Silver (NY Close): $28.43 // -0.29 // -0.99%
Prices continue to trace out a Flag chart formation, a setup indicative of bearish continuation. Confirmation is required on a daily close below the pattern’s bottom – now at 28.37 – which would expose 27.06 as the next downside objective. The first layer of major resistance lines up at 29.71.
 Daily Chart - Created Using FXCM Marketscope 2.0
COMEX E-Mini Copper (NY Close): $3.434 // +0.038 // +1.12%
Prices took out resistance at 3.384, the 23.6% Fibonacci retracement, with the bulls now aiming to challenge the 38.2% Fib at 3.474. The 23.6%retracement has been recast as near-term support, with a break below that

 Daily Chart - Created Using FXCM Marketscope 2.0

%%%Dollar Falls on stimulus hopes in Asia, more of the same future reference

5 June 2012 strategist 07: 05 GMT Talking Points
Euro can be found Near-Term pressure of Final Round of PMI revisions US Dollar sold as Stocks rise on Fed stimulus hopes Asia Trade Aussie Dollar Gains as RBA offers a modest 25 bps cut speed S & P 500 Index Futures Point of recovery continued in revisions appetite of Final risk of services and data from the eurozone PMI composite of may are discussed in European hours. The impression of the region should confirm that activity in the manufacturing sector and services contracted at the fastest pace in almost three years. Separately, in the euro area retail sales and two German factory orders should show monthly declines in April. Taken together, the results can apply a bit of pressure down on the Euro: traders are beginning to build the expectations of ECB rate but support seems unlikely that the announcement policy just around the corner, suggesting traders will want to wait to push the euro down new concrete benchmarks Dove of Mario Draghi and company.
On the sentiment front, S & P 500 stock index futures contracts pointing more Asian trade, referring that the risk appetite is likely to continue to weigh on the refuge currencies in the next few hours. The gauge ISM Non-Manufacturing Composite comes in discussion later in the session. Median forecasts call for printing to 53.5 in may, matching result of April. With reading orders for the plant of yesterday, a result consistent with expectations is unlikely cause Fireworks, but a disappointing result may composed an on the Dollar downward pressure in the context of the theme there-led to play this week.
The US Dollar and the Japanese Yen fell against fellow top trade night Asian stocks advanced, sapping demand for currencies refuge go - to. The MSCI Asia Pacific regional reference index increased by 1.4%. As we have suspected yesterday, improving sentiment followed a printing us Factory Orders disappointing that stimulated speculation about a possible third round of Federal Reserve quantitative easing (there). The Australian Dollar was surpassed as expected after the RBA delivered a 25 bps rate coupled with a policy statement which gave no clear guidance on the future efforts of relaxation.
Asia session: What happened
AiG Performance of service Index (may)
Current account balance (was$) (1 q)
Net exports of the Australia of GDP (1 q)
Subject to the decision of the Australia rate Bank
Session of the euro: what to expect
The eurozone PMI composite (may F)
The euro Zone PMI services (may F)
Retail trade in the eurozone (MoM) (APR)
Retail trade in the eurozone (YoY) (APR)
German Factory Orders s.a. (MoM) (APR)
German Factory Orders n.o.s. (YoY) (APR)
Critical levels
-Written by Ilya Spivak, strategist of Dailyfx.com currency
Contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @ IlyaSpivak
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June 5, 2012 07: 05 GMT

:: Dollar: Talk of crisis, in competition with the stimulus rumor Post NFPs

Dollar: Talk of Crisis Competing with Rumor of Stimulus Post NFPs Euro Crisis May Have Become Infectious, Will the EU and ECB Act? British Pound Suffers Hearty Losses Against Majors This Past Week Japanese Yen: Did the Bank of Japan Intervene? Australian Dollar Under Pressure with RBA, GDP and Jobs on Deck Canadian Dollar: Now is the Chance to Regain its Footing with Jobs and BoC Gold Enjoys its Biggest Daily Rally Since January 2009, Is this a QE3 Sign? Dollar: Talk of Crisis Competing with Rumor of Stimulus Post NFPs
Friday was an unusual day for the US dollar. By any standard, the global markets were drowning under a particularly acute risk aversion drive. For the S&P 500 – a benchmark for sentiment that is backed by the fabled stimulus spells the Federal Reserve casts – the fundamental outlook was dire enough to deliver the index its biggest daily hit since November 9. At the same time, equities-based VIX volatility index hit a new high for the year (26.7 percent) while the currency market equivalent did the same (12.3 percent). These are the kinds of conditions that the liquidity-derived, safe haven greenback typically flourishes in. And yet, the Dow Jones FXCM Dollar Index produced a second daily decline…
The eventual bearish close for the benchmark currency should not be overstated. The weak close came after an incredible morning rally that was later retraced – which is even more unusual. From the individual currency pairings, the rebound for the yield-intense crosses is unusual, the cable’s (GBPUSD) consistent was true, USDJPY found carry interests outpacing liquidity, but it was EURUSD’s biggest rally in two weeks that truly departs from the market consensus. This particular pair generally reflects the underlying tensions of the market and tracks the move away from the world’s most troubled region. So then, why did we find a bounce on a day where blatant risk aversion was the order of the day? Hope. After May NFPs posted a sizable miss (69,000 versus 150,000 expected), lingering fears were sharply amplified…amplified to the point where moral hazard kicked back in and expectations for fresh rounds of stimulus started to tickle rally-fantasies.
A preemptive effort to prevent another crippling financial situation is always the best policy, but rarely are these efforts made unless the duress is threatening systemic functioning of the system. Aside from a market-wide meltdown, there aren’t many opportunities for the Fed to open the flood gates – they do have the June rate decision the following week (which is the last meeting before Operation Twist ends this month). That said, speculation usually wins the day for market influence. We have the Beige Book and Bernanke testimony before the Joint Economic Committee in the upcoming days. Furthermore, there is growing speculation of action from the ECB, BoE, PBoC, BoJ and SNB to consider…
Euro Crisis May Have Become Infectious, Will the EU and ECB Act?
If we had to put a label on the Euro’s fundamental performance (not price action) for Friday, it would be ‘bearish’. That isn’t particularly surprising given the consistent deterioration of the Euro Zone’s financial health these past weeks. Yet, recently, have seen repetitious headlines and news that really isn’t news carry the bears forward. On Friday, we did see yields suffer further, credit default premiums rise, Italy take a downgrade form Egan Jones, a 12-year high in Italian unemployment and a raise forecast for Portuguese joblessness for 2012; but these developments aren’t necessarily of the caliber we would expect to drive us further towards 2-year lows. Unless Spain’s financial situation significantly deteriorates or Portugal decide to play catch up (they have a bond auction this coming week), we have a break until Greece’s second election on June 17. In the meantime, the ECB has the opportunity to perhaps restart its SMP or cut rates and/or offer more stimulus at its rate decision.
British Pound Suffers Hearty Losses Against Majors This Past Week
The British Pound is an interesting position. While the euro was waging a rebound against the US dollar, GBPUSD would close out its fourth consecutive daily decline on a very prominent range of support that traces back two years. A perceived improvement in the Euro-crisis situation will be immediate (if temporary) relief for the UK – the stepping stone for a global crisis spread. That said, the sterling has its own issues: like thinned liquidity due to the holiday period and the possibility that the BoE could announce more bond purchases (low threat, but still there).
Japanese Yen: Did the Bank of Japan Intervene?
There was a tremendous level of volatility the final 24 hours of the trading week, and even the most liquid pairs (EURUSD) were showing unexpectedly sharp reversals. However, USDJPY in particular seems to have carved out an incredibly volatile intraday swing. There is heavy speculation that a move of this extent was clearly an intervention effort by the Finance Ministry or Bank of Japan. Policy officials deny it, though, and traders that process their positions say it wasn’t the case either. Yet, if we are moving into further crisis, they may have to act.
Australian Dollar Under Pressure with RBA, GDP and Jobs on Deck
Speculation has dominated the Australian dollar’s course and pace these past weeks and months. It is interesting to note then that we will finally find some tangible evidence for market’s to work with in the upcoming week. We have a range of very important, fundamental release that we must watch: an RBA rate decision, a 1Q GDP release and May labor statistics. Most critical in this mix is the rate decision – as it taps into the trifecta of fundamental fears (risk trends, yield and China). Keep an eye on backdrop sentiment trends though throughout the week.
Canadian Dollar: Now is the Chance to Regain its Footing with Jobs and BoC
The Canadian dollar was the worst performing currencies of the majors this past Friday thanks to the double hit of a disappointing US employment read (the United States is Canada’s largest trade partner) and a weaker-than-expected March GDP reading. Was that really enough to drive the loonie down that quickly though? The currency is particularly sensitive to trouble because of its independent, hawkish rate outlook. The BoC could secure the currency’s good name if it feeds the rate outlook. Otherwise, we watch risk trends and await Friday’s jobs data.
Gold Enjoys its Biggest Daily Rally Since January 2009, Is this a QE3 Sign?
If there was a clear winner over the final trading of this past week, it was gold. With risk aversion on high gear and the dollar struggling to gain the traction it usually finds in flights of fear, the alternative safe haven posted an incredible, 4.1 percent rally – the biggest single day climb since January of 2009 (the tail end of the worst financial crisis in record history). So, gold surges while the dollar struggles when liquidity demand should be cresting. This joins an interesting list of fundamental performances that suggests the market is pricing in near-term QE3.
For Real Time Forex News, visit: http://www.dailyfx.com/real_time_news/
**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar
ECONOMIC DATA
Next 24 Hours
A measure of inflation for a country without.
TD Securities Inflation (MoM) (MAY)
Both markets and economists expect an RBA rate cut, this will cement expectations.
TD Securities Inflation (YoY) (MAY)
Company Operating Profit (QoQ) (1Q)
Corporate activity will be a good lead in to the main event – 1Q GDP figures.
Another lead in indicator to the later release labor stats.
Euro-Zone Sentix Investor Confidence (JUN)
The financial fires are stoked, how have investors fared?
Euro-Zone Producer Price Index (MoM) (APR)
Secondary inflation figures will carry little sway over the ECB last minute.
Euro-Zone Producer Price Index (YoY) (APR)
Regional and national factory figures have slowed recently, raising figures of recession.
AiG Performance of Service Index
Meaningful granularity but likely to be lost ahead of the RBA and in advance of the 1Q GDP aggregate.
Australia Net Exports of GDP (1Q)
Current Account Balance (Australian Dollar) (1Q)
Most focus goes to manufacturing, but service sectors are important to a growing economy.
Fed's Kocherlakota Speaks on Economic Theory in Minneapolis
EU's Rehn Meets French Fin Min Moscovici
SUPPORT AND RESISTANCE LEVELS
To see updated SUPPORT AND RESISTANCE LEVELS for the Majors, visit Technical Analysis Portal
To see updated PIVOT POINT LEVELS for the Majors and Crosses, visit our Pivot Point Table
CLASSIC SUPPORT AND RESISTANCE –EMERGING MARKETS 18:00 GMTSCANDIES CURRENCIES 18:00 GMT
INTRA-DAY PROBABILITY BANDS 18:00 GMT

$ Dollar: Talk of crisis, in competition with the stimulus rumor Post NFPs

Dollar: Talk of Crisis Competing with Rumor of Stimulus Post NFPs Euro Crisis May Have Become Infectious, Will the EU and ECB Act? British Pound Suffers Hearty Losses Against Majors This Past Week Japanese Yen: Did the Bank of Japan Intervene? Australian Dollar Under Pressure with RBA, GDP and Jobs on Deck Canadian Dollar: Now is the Chance to Regain its Footing with Jobs and BoC Gold Enjoys its Biggest Daily Rally Since January 2009, Is this a QE3 Sign? Dollar: Talk of Crisis Competing with Rumor of Stimulus Post NFPs
Friday was an unusual day for the US dollar. By any standard, the global markets were drowning under a particularly acute risk aversion drive. For the S&P 500 – a benchmark for sentiment that is backed by the fabled stimulus spells the Federal Reserve casts – the fundamental outlook was dire enough to deliver the index its biggest daily hit since November 9. At the same time, equities-based VIX volatility index hit a new high for the year (26.7 percent) while the currency market equivalent did the same (12.3 percent). These are the kinds of conditions that the liquidity-derived, safe haven greenback typically flourishes in. And yet, the Dow Jones FXCM Dollar Index produced a second daily decline…
The eventual bearish close for the benchmark currency should not be overstated. The weak close came after an incredible morning rally that was later retraced – which is even more unusual. From the individual currency pairings, the rebound for the yield-intense crosses is unusual, the cable’s (GBPUSD) consistent was true, USDJPY found carry interests outpacing liquidity, but it was EURUSD’s biggest rally in two weeks that truly departs from the market consensus. This particular pair generally reflects the underlying tensions of the market and tracks the move away from the world’s most troubled region. So then, why did we find a bounce on a day where blatant risk aversion was the order of the day? Hope. After May NFPs posted a sizable miss (69,000 versus 150,000 expected), lingering fears were sharply amplified…amplified to the point where moral hazard kicked back in and expectations for fresh rounds of stimulus started to tickle rally-fantasies.
A preemptive effort to prevent another crippling financial situation is always the best policy, but rarely are these efforts made unless the duress is threatening systemic functioning of the system. Aside from a market-wide meltdown, there aren’t many opportunities for the Fed to open the flood gates – they do have the June rate decision the following week (which is the last meeting before Operation Twist ends this month). That said, speculation usually wins the day for market influence. We have the Beige Book and Bernanke testimony before the Joint Economic Committee in the upcoming days. Furthermore, there is growing speculation of action from the ECB, BoE, PBoC, BoJ and SNB to consider…
Euro Crisis May Have Become Infectious, Will the EU and ECB Act?
If we had to put a label on the Euro’s fundamental performance (not price action) for Friday, it would be ‘bearish’. That isn’t particularly surprising given the consistent deterioration of the Euro Zone’s financial health these past weeks. Yet, recently, have seen repetitious headlines and news that really isn’t news carry the bears forward. On Friday, we did see yields suffer further, credit default premiums rise, Italy take a downgrade form Egan Jones, a 12-year high in Italian unemployment and a raise forecast for Portuguese joblessness for 2012; but these developments aren’t necessarily of the caliber we would expect to drive us further towards 2-year lows. Unless Spain’s financial situation significantly deteriorates or Portugal decide to play catch up (they have a bond auction this coming week), we have a break until Greece’s second election on June 17. In the meantime, the ECB has the opportunity to perhaps restart its SMP or cut rates and/or offer more stimulus at its rate decision.
British Pound Suffers Hearty Losses Against Majors This Past Week
The British Pound is an interesting position. While the euro was waging a rebound against the US dollar, GBPUSD would close out its fourth consecutive daily decline on a very prominent range of support that traces back two years. A perceived improvement in the Euro-crisis situation will be immediate (if temporary) relief for the UK – the stepping stone for a global crisis spread. That said, the sterling has its own issues: like thinned liquidity due to the holiday period and the possibility that the BoE could announce more bond purchases (low threat, but still there).
Japanese Yen: Did the Bank of Japan Intervene?
There was a tremendous level of volatility the final 24 hours of the trading week, and even the most liquid pairs (EURUSD) were showing unexpectedly sharp reversals. However, USDJPY in particular seems to have carved out an incredibly volatile intraday swing. There is heavy speculation that a move of this extent was clearly an intervention effort by the Finance Ministry or Bank of Japan. Policy officials deny it, though, and traders that process their positions say it wasn’t the case either. Yet, if we are moving into further crisis, they may have to act.
Australian Dollar Under Pressure with RBA, GDP and Jobs on Deck
Speculation has dominated the Australian dollar’s course and pace these past weeks and months. It is interesting to note then that we will finally find some tangible evidence for market’s to work with in the upcoming week. We have a range of very important, fundamental release that we must watch: an RBA rate decision, a 1Q GDP release and May labor statistics. Most critical in this mix is the rate decision – as it taps into the trifecta of fundamental fears (risk trends, yield and China). Keep an eye on backdrop sentiment trends though throughout the week.
Canadian Dollar: Now is the Chance to Regain its Footing with Jobs and BoC
The Canadian dollar was the worst performing currencies of the majors this past Friday thanks to the double hit of a disappointing US employment read (the United States is Canada’s largest trade partner) and a weaker-than-expected March GDP reading. Was that really enough to drive the loonie down that quickly though? The currency is particularly sensitive to trouble because of its independent, hawkish rate outlook. The BoC could secure the currency’s good name if it feeds the rate outlook. Otherwise, we watch risk trends and await Friday’s jobs data.
Gold Enjoys its Biggest Daily Rally Since January 2009, Is this a QE3 Sign?
If there was a clear winner over the final trading of this past week, it was gold. With risk aversion on high gear and the dollar struggling to gain the traction it usually finds in flights of fear, the alternative safe haven posted an incredible, 4.1 percent rally – the biggest single day climb since January of 2009 (the tail end of the worst financial crisis in record history). So, gold surges while the dollar struggles when liquidity demand should be cresting. This joins an interesting list of fundamental performances that suggests the market is pricing in near-term QE3.
For Real Time Forex News, visit: http://www.dailyfx.com/real_time_news/
**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar
ECONOMIC DATA
Next 24 Hours
A measure of inflation for a country without.
TD Securities Inflation (MoM) (MAY)
Both markets and economists expect an RBA rate cut, this will cement expectations.
TD Securities Inflation (YoY) (MAY)
Company Operating Profit (QoQ) (1Q)
Corporate activity will be a good lead in to the main event – 1Q GDP figures.
Another lead in indicator to the later release labor stats.
Euro-Zone Sentix Investor Confidence (JUN)
The financial fires are stoked, how have investors fared?
Euro-Zone Producer Price Index (MoM) (APR)
Secondary inflation figures will carry little sway over the ECB last minute.
Euro-Zone Producer Price Index (YoY) (APR)
Regional and national factory figures have slowed recently, raising figures of recession.
AiG Performance of Service Index
Meaningful granularity but likely to be lost ahead of the RBA and in advance of the 1Q GDP aggregate.
Australia Net Exports of GDP (1Q)
Current Account Balance (Australian Dollar) (1Q)
Most focus goes to manufacturing, but service sectors are important to a growing economy.
Fed's Kocherlakota Speaks on Economic Theory in Minneapolis
EU's Rehn Meets French Fin Min Moscovici
SUPPORT AND RESISTANCE LEVELS
To see updated SUPPORT AND RESISTANCE LEVELS for the Majors, visit Technical Analysis Portal
To see updated PIVOT POINT LEVELS for the Majors and Crosses, visit our Pivot Point Table
CLASSIC SUPPORT AND RESISTANCE –EMERGING MARKETS 18:00 GMTSCANDIES CURRENCIES 18:00 GMT
INTRA-DAY PROBABILITY BANDS 18:00 GMT

BoE Minutes Show 8-1 Vote Against Stimulus, Low Short-Term Growth Projections

THE TAKEAWAY: BoE Voted 8-1 to keep QE unchanged -> Further stimulus is a future possibility -> Cable drops leading up to BoE release
8 out of 9 Bank of England members voted against raising quantitative easing, keeping the bond-purchase program at 325 billion pounds, according to the minutes from their May 9-10 meeting. For the second month in a row, David Miles was the only member of the Monetary Policy Committee who voted for a 25 billion increase of the asset purchase program.
‘Further monetary stimulus could be added if the outlook warranted it,’ read the minutes from the meeting. The minutes also mentioned that economic growth will be weak in the long term, following the previous quarter’s onset of a double dip recession, and the euro-debt crisis remains a threat to the UK.
However, the Bank of England also said that consumer price index outlook doesn’t call for further QE, as inflation is projected to slow to the target 2.0% rate by 2013. Yesterday’s UK CPI rate came in slightly lower than expected, further supporting the lower inflation target.
Also reported this morning were UK retail sales, which fell the most in two years during April. Retail sales dropped an unexpected 2.3% from March, versus a revised 2.0% growth during the previous month. The drop in demand was attributed to rainfall that curbed clothing and fuel sales according to the Office for National Statistics.
The drop in sales comes as another sign of a slowing economy in the UK, and that combined with the lower than expected inflation supports those who hope to see further stimulus.
The expectation for further stimulus has a mixed effect on the sterling. Further QE would lower interest rates, which is usually currency-negative. However, if the stimulus is seen as effectively boosting growth, it could be considered currency positive.

Cable fell to 1.57000 in the hour before the release of the BoE minutes and the retail sales, and then briefly continued its drop following the news before retreating to the 1.5700 level. The next major support comes in at 1.5600.

¥ Yen Soars as BOJ Holds Back on Stimulus, EU Summit Now in Focus

Discussion points
Japanese Yen rise on the political BOJ hold, Greece-Linked Stocks Bond Euro at risk if the EU Summit does not offer practical rhetorical support Bank of England unlikely Minutes stir the S & P 500 Stock Index Futures price Fireworks Point on risk Aversion before the Japanese Yen rose against high counterparts in trade to the day the dayadding as much as 0.7% on average, after the Bank of Japan has chosen to retain all the elements of its unchanged monetary policy regime. Traders expected to see Maasaki Shirakawa and company extend stimulus the BOJ tries to meet its objectives of 1%, which would require doubling the rate of price growth registered in March.
The announcement of the BOJ aggravated existing upward pressure on sentiment on the Japanese unit as Asian shares sank, conduct capital in the currency of refuge. The rout probably reflects the front trac Chief today Summit EU traders meditate a final at the last outbreak of crisis debt which can include the output of the Greece of the euro area. Unsurprisingly, the stocks-linkedAustralian and New Zealand Dollars were the aversion to risk in the FX space.
The seated EU is being presented as a dinner of "informal". German officials were busy to take to the wires yesterday to pour cold water on expectations of what can appear to its conclusion. A statement on the Greece, the issuance of joint Eurobonds or any specific policy decision are in General according to the German sources, cited in the range of products - not to do. That left traders naturally confused as to what is said in fact.
If the German public line is taken at face value, the conversation focuses on the European Investment Bank (EIB) and how it can be used more effectively to boost growth, probably without compromising the deficit reduction efforts. If this is the case, disappointed with the sale seems to get off on the Euro and the spectrum of assets at risk in the broad sense. Stock index future S & P 500 to a resolutely austere atmosphere in financial markets, trade at 0.5 per cent of the Bell to open in Europe.
Elsewhere on the calendar, the minutes of the Bank of England rate decision this month seems unlikely that generate fireworks of the action of bellicose after that implied price that apparently emerged to him sitting of April were quickly dispersed with the quarterly last week report, the inflation. ICC soft yesterday printing has also helped on this front, implementation mute the value of shock of a dovish result while claiming against a warmongers.
Asia session: What happened
Total trade balance (JPY) of goods (APR)
Adj. Trade Balance (JPY) (APR)
Goods trade exports (YoY) (APR)
Importation of trade (YoY) (APR) merchandise
Conference Board Leading Index (MAR)
Westpac Leading Index (MoM) (MAR)
DEWR skilled vacancies Internet (MoM) (APR)
Session of the euro: what to expect
Italy consumer confidence index (may)
N.o.s. for account of the euro (€) (MAR)
S.a. account current of the euro (€) (MAR)
Retail ex Auto fuel (MoM) (APR)
Retail ex Auto fuel (YoY) (APR)
Retail sales w/Auto fuel (MoM) (APR)
Retail sales w/Auto fuel (YoY) (APR)
CBI trends of the sale price (may)
EU leaders hold the Summit in Brussels
Critical levels

¥ Japanese Yen Shocked by Essentially Expected BoJ Stimulus Expansion

Dollar Breaks Down from Two Month Range, Little Follow Through Euro Takes an Unexpected Jolt from Surprise Spain Downgrade Japanese Yen Shocked by What was Essentially Expected BoJ Stimulus Expansion British Pound Grinds Out its 9th Daily Advance, No 10-Day Runs in Past Decade New Zealand Dollar Will Start Coming Under Pressure as Market Fears Rate Cut Swiss Franc Pressured Once Again by Spain’s Financial Troubles Gold Enjoys its Biggest Jump in Two Weeks on Dollar’s Drop, BoJ Pump Dollar Breaks Down from Two Month Range, Little Follow Through
We have seen many false breaks and false starts this past week, and the dollar seems to have jumped on the bandwagon as well. Having worked its way into the most congestive pattern seen in over a year, the Dow Jones FXCM Dollar Index was finally forced to choose a direction. And, choose it did a bearish break below 9900. However, just like every other exciting price development we have seen in the FX and capital markets this past week, the greenback’s bearish ambitions dried up almost immediately after the move was made. That said, the slow drift was nevertheless supported by the equally strained fundamentals. Risk appetite trends measured in the S&P 500 overtook resistance on the past two weeks’ congestion. Strength behind the ‘risk on’ run was just as anemic as the fallout from the FOMC decision Wednesday.
The disconnect for meaningful drives in the currency and capital markets isn’t the quality of the fundamental developments we’ve absorbed – especially not this past week. Rather, the trouble is in the general lack of participation we have seen from speculative masses. It is difficult to offer a good measure of participation in the FX market, but we can refer to the long-anemic level of turnover in other benchmark assets (like the S&P 500). A very interesting measure for currency traders though is the FX market volatility index (CVIX) which shows expected activity levels (over the next three-months for those looking for specifics) is at its lowest level since August 2008 – at 9.27 percent. Freely traded markets do not tolerate extremes for long. Though, when manipulation is as common as daily rollover, the abnormalities can last a little longer…
Looking ahead to the final New York session of this trading week, we have another opportunity for major event risk to finally spur some conviction to this painful, schizophrenic volatility. Compared to the Fed’s rate decision earlier this week, the impact potential of the 1Q US GDP report seems far more restrained. The market’s have already been tempered to a slowdown in economic activity globally with the UK recession, lowered European forecasts and moderated expectations for Asia. Perhaps there is some holdout value for the US to rise above it all. If that is a consensus belief, a disappointment could change a lot of expectations and thereby positions. That said, I’m skeptical.
Euro Takes an Unexpected Jolt from Surprise Spain Downgrade
We were given a clear lesson in just how effective fundamental catalysts can be if the markets are caught off guard. This past week, we had to leverage very heavy event risk to squeeze out a moderate level of price action. Yet, on Thursday, an unexpected Standard & Poor’s downgrade of Spain from A to BBB+ drove both the euro and equity futures lower in normally quiet market conditions. Follow through was limited, but that is generally the cut of the market. Nonetheless, we have seen from the market’s reaction to the Spanish downgrade, that there is serious concern that another country has taken over as the top regional concern (until Greece wants to reclaim the crown with its election). This is a good effort to leverage the situation for a potentially bigger drive next week considering we have first quarter Spanish GDP numbers on Monday.
Japanese Yen Shocked by What was Essentially Expected BoJ Stimulus Expansion
We witness some incredibly unusual and choppy price action from the Japanese yen this morning in reaction to the Bank of Japan’s policy decision. There was a fully formed consensus on what would happen with this event – the central bank would fold to government pressure and increase its asset purchases by 5 to 10 trillion yen. The details may have confused some, but the general outcome fit that profile. The central bank actually increased its asset purchase plan by 10 trillion yen (to 40 trillion). They would also extend the program by six months, reduced the credit loan program by 5 trillion yen, extended the JGB maturity targets from 2 to 3 years and maintained the 1 percent inflation target. Back in February, a similar move instigated an incredible USDJPY trend reversal. Now, it barely boosts volatility. The BoJ has been rendered impotent.
British Pound Grinds Out its 9th Daily Advance, No 10-Day Runs in Past Decade
With Thursday’s close, cable (GBPUSD) won its ninth consecutive advance. We have seen runs of similar consistency back on January 19, 2011 and August 3, 2010. Aside from these instances, the past decade is clear of such momentous drives; and there haven’t been any 10-day runs over that period. What does that tell us, the sterling is very likely looking at a correction. That said, the 2.1 percent run to this point is far more restrained than the previous drives 3.4 percent move. Further, these markets aren’t prone to momentum. It could be a lackluster pullback.
New Zealand Dollar Will Start Coming Under Pressure as Market Fears Rate Cut
The FX market seemed to completely ignore the neutral shift in the RBNZ’s policy tone this past week, but we are starting to see its after effects in the interest rates market. According to interest rate swaps, there is a 20 percent probability of a quarter-percent rate cut at the next meeting. Furthermore, the 12-month rate forecast is calling for 6 bps of easing. That may seem modest, but it is the most dovish forecast we have seen in three months. Back in the early days of the Aussie rate shift, the reaction was slow. If global conditions slow, the kiwi could follow the same path.
Swiss Franc Pressured Once Again by Spain’s Financial Troubles
The Swiss National Bank has very few options available to further its effort to devalue the franc. The optimal situation for the group would be for a natural recovery in growth and financial conditions for the Euro-area which curbs the safe haven outflow that directs capital directly to the Swiss banking sector. That looks unlikely as we keep jumping to the next issue for the region. The current approach of unlimited euro purchases will no doubt have a cost limit, and Spain’s downgrade has ratcheted up the spending. What will it take for them to lift the floor or issue curbs?
Gold Enjoys its Biggest Jump in Two Weeks on Dollar’s Drop, BoJ Pump
A key tumble for the US dollar offered gold a spring board for its biggest rally in two weeks. The three-day run the metal is impressive in binary terms only. This commodity is lacking for momentum as surely as its fiat counterparts. Though gold is a safe haven and ideal alternative to inflated stimulus regimes; if there is no follow through on currencies or risk trends, it is unlikely that the metal will gain any additional traction. Watch for any risk trend impact to the upcoming US GDP reading. Without it, gold will likely limp into the weekend.
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ECONOMIC DATA
Next 24 Hours
All eyes to be on whether BoJ increases asset purchases for the second time this year
HIA New Home Sales (MoM) (MAR)
Industrial Profits YTD YoY (MAR)
Could be affected by broader Chinese economic slowdown
MNI April Business Condition Survey
Vehicle Production (YoY) (MAR)
Construction Orders (YoY) (MAR)
Annualized Housing Starts (MAR)
Expected to remain near highest level since 2007 on robust labor market
GfK Consumer Confidence Survey (MAY)
Expected to reflect ongoing trend of easing price pressures in Eurozone
Import Price Index (MoM) (MAR)
Import Price Index (YoY) (MAR)
Likely to remain depressed on high unemployment
KOF Swiss Leading Indicator (APR)
Effects of Monti government’s austerity measures still strong
US GDP and consumption figures expected to show steady economic recovery; could further weaken the case for additional monetary stimulus measures
BoE’s Tucker Speaks in Brussels
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