London Session

EUR/USD and cable both pushed higher during early London hours this morning, stock markets are also trading moderately higher. However, the market has lacked the confidence to buy strongly into the risk trade this morning and most currency pairs have seen little overall direction.

A series of poor economic data releases have underscored scepticism over the outlook for the global recovery. While Japanese Q1 GDP headline data was not as bad as expected, the -4.0% q/q fall followed a downward revision to the Q4 data (to -3.8% q/q). Exports provided the biggest negative contribution, private consumption was also very weak. In Australia, a disappointing 4.3% fall in consumer confidence overnight knocked both the AUD and general enthusiasm for risk. AUD/USD stumbled and fell back to the USD0.7990 before finding support. More bad news in the Eurozone was seen in the form of Spanish GDP which at -1.9q/q in Q1 registered the biggest contraction in half a century. With 4 million already unemployed (17.7%), the Spanish economy provides a strong case for further easing in policy. Clearly ECB policy will remain oriented around the more dominant German economy. However, with Germany, France and Italy publishing poor GDP figures last week there is a clear possibility that the ECB may announce additional policy measures at its June meeting.

The early rise of EUR/USD met with resistance at the 1.3660 area, the EUR subsequently giving back some of its gains. Similarly, cable's early momentum has waned ahead of the 1.5530 level. Sterling derived little incentive from either the release of the BoE May minutes or from the May CBI industrial trends survey. The tone of the minutes lacked the very dovish tone obvious in the presentation of the May Inflation Report by Governor King last week. While the minutes confirmed a clear majority voted to extend the quantitative easing measures, they also admitted to some arguments being presented against an extension of the asset buying program. This will likely increase speculation that the Bank may not extend the programme further, though much will depend on upcoming economic data. The CBI survey noted only a small improvement in total orders. The survey was only consistent with the view that the pace of the deterioration may be easing. Better data will be needed to extend the view that the recovery is in view.

This afternoon Canadian CPPI data is due. The minutes of the April 29 FOMC meeting will also be released. Key will be Treasury Secretary Geithner's Senate hearing.

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