London Session

Strong buying pressure chased cable all the way to the USD1.5300 level this morning, from an open in the 1.5100 area and EUR/GBP tested the water below the EUR/GBP 0.8940 level.
Buyers' appetite for sterling was increased by a round of better than expected UK economic data. The overnight publication of the BRC April retail sales monitor reported a stunning 4.6% y/y increase – though like the recently published CBI retail survey, some of this strength may be related to the timing of the Easter break. On the heels of this data was an improvement in the RICS house price balance. However, like most of the rest of recent housing market data, this can only be construed as indicating a levelling off in the downturn. This morning, UK trade and production data for March all came in better than expected. While the -0.6% m/m fall in total production does not represent overly good news, the improvement from the -1.0% m/m decline in Feb is consistent with the idea that the UK economy may have reached an inflexion point. The total UK trade balance registered a deficit of –GBP2.5 bln in Mar, continuing the improvement in the trend in evidence since July 2008. The next key focus for the UK market will be the publication of the BoE's Inflation Report tomorrow. Insofar as the Bank last week announced an extension of its asset buying plan it seems likely that a dovish tone on the economy will be projected tomorrow suggesting that the pound may be inclined to pare its gains into the release.

Bernanke chose to talk up the USD overnight. The Fed Chairman reported that the Fed will contribute to a strong USD. Bernanke also remarked that the banks now appear to have better access to private capital. In the recent spirit of the risk trade, these latter comments are consistent with a move out of USDs. EUR/USD edged progressively higher during early London hours; moving back towards EUR/USD1.3675. However, in the past hour USD buyers have emerged. Bernanke's comments on the banks have also softened sentiment in stock markets.

The Australian Treasurer has forecast a record budget deficit of AUD53.1 bln during today's budget speech. The news is not significantly different from market forecasts; although this morning's upside momentum in the AUD has been hindered and AUD/USD is giving back some of its gains. The AUD had maintained a softer tone overnight in Asia on concerns over the budget speech.

The publication of the US trade report will be a focus this afternoon. In view of gains in oil prices, the market is expecting the deficit to deteriorate in March to –USD29.0 bln. A weaker number combined with a positive open in US stocks could lend EUR/USD renewed support.

Upcoming Economic Data Releases (US Session). Prior, Expected