By DailyFX - Dollar Stronger Ahead of China-US Summit in Washington With absolutely no economic data on the schedule, the US dollar showed unabashed strength...

... throughout the day against the majors as indications emerged late last week that consumer confidence remained high and growth in the manufacturing sector was healthy.

Furthermore, the G8 meeting of
central bankers and finance ministers in Germany held over the weekend
yielded no market moving commentary, as hedge fund regulation served as
the dominant theme once again. Starting tomorrow, however, things could
get a little more exciting for US dollar trade. First, it will be
interesting to see if the Peoples Bank of Chinas decision to raise
interest rates and widen the daily trading band for the yuan managed to
placate US officials at least temporarily at the China-US economic
summit in Washington that starts tomorrow. The action by the PBoC is
unlikely to have had a large impact on Treasury Secretary Henry
Paulsons push for flexibility on the yuan, especially since the
currency had never moved by the maximum amount allowed within the prior
range of 0.3 percent, leaving little potential for a rapid appreciation
of the Chinese currency. The other major event risk for the US this week
is on Thursday, as Durable Goods are estimated to weaken during the
month of April. While this is in and of itself bearish for the dollar,
there is major downside potential for the release, especially the
ex-transportation index, given the dismal Advance Retail Sales report
for the same month. Add the atrocious April figures from retailers such
as Wal-mart to the mix, and the outlook for the sector appears even
drearier.

Euro: Will Sentiment Give Clues as to What the ECB Will Do Beyond
June?

Similar to the US, an empty economic calendar and lack of G8 commentary
provided little spark for euro trade, leaving the currency to saunter
lower. A euro bid tone could re-emerge over the course of the week,
though, as event risk out of the Euro-zone is filled with sentiment
reports with the ZEW, IFO, and GfK surveys all scheduled to be released.
The ZEW and IFO releases are both anticipated to reflect growing
optimism amongst investors, as equity markets continue to reach new
highs and businesses throughout the Euro-zone outperform. Meanwhile,
consumers are forecasted to show more confidence in the economy in the
GfK survey, as labor market conditions are perpetually improving.
Nevertheless, hot inflation remains the key factor for European Central
Bank policy decisions, so we will likely have to wait for Trichets
commentary following the June 6th rate announcement for a more accurate
gauge. Meanwhile in Switzerland, producer and import prices gained the
most in 14 years in April, pointing to potentially higher CPI figures.
Moreover, the KOF leading indicator is anticipated to be quite
encouraging on Friday given the resilience of consumption and trade, and
with the SNB stating their desire to continue normalizing rates, a
strong KOF figure combined with mounting inflation may bring traders to
price in a hike on June 14th.

British Pound: Mixed Data Leaves SterlingSlightly Lower
The British pound remained under selling pressure following the release
of less than exemplary housing data in the overnight. According to the
industry survey published by Rightmove, home prices rose 0.4 percent,
the slowest since December of last year and less than consensus
expectations. Subsequently, the smaller than expected rise helped to
pull the annualized figure lower to 13.1 percent from the previously
bullish 15 percent just a month ago. Although still relatively positive
for the UK economy, the figures reflect a potential soft patch in the
otherwise bullish real estate sector. Similar reflections were also
pinpointed in recent surveys, showing that demand was waning slightly as
supply has incrementally crept higher. However, money supply figures
continue to suggest inflationary pressures remain, keeping some of the
more bullish sterling players in the market and propping the currency
above the 1.9700 figure. The latter will keep the market focus turned
to this weeks release of the Bank of England meeting minutes. But
should solidarity be lost through a lone dissenter, it may continue the
downward directional bias for the sterling in the near term.

Japanese Yen: Traders Still Ahead Of Meeting Minutes Release
In similar fashion to the British pound, traders are focusing their
attention on the release of the Bank of Japan meeting minutes. With all
the hype surrounding carry trade speculation, short yen traders will
surely be scrutinizing for any further indications of a pre-emptive move
on inflationary pressures in the worlds second largest economy.
Although the potential does remain, the likelihood continues to be a far
off scenario as policy makers have little to go on as far as a
definitive move towards monetary tightening. Domestic spending,
although improving, remains in the cellar for the Japanese economy,
helping to keep consumer prices lower in the face of rising global oil
prices. With growth also lower than expected, marking at 2.4 percent
against expectations of a repeat 5 percent from the year before, policy
makers are sure to keep a higher interest rate in the back of their
minds, at least for now. The notion should keep the yen moving lower
against higher yielders, including the US dollar, barring any
liquidation in Shanghai.

Canadian Dollar Momentum Continues, Pushes USDCAD Below 1.0950
Canadian dollar was big news on the day as the underlying currency
strengthened against the US dollar in the London and New York session.
Both Aussie and Kiwi remained in relatively the same ranges from last
week, priced at 0.8217 and 0.7295 respectively. Dropping through the
1.0950 figure, the USDCAD currency pair was able to plummet through to
trade to a 30-year low of 1.0825 over the last 24 hours. Although
warranting plenty of intraday attention, the move wasnt that much of a
surprise as price action was a simple reflection of further momentum
stemming from Fridays surprising retail sales figures. A recap, for
the month of March, retail sales in the worlds ninth largest economy
advanced by an impressive 1.9 percent, over consensus figures of a 0.8
percent advance. Incidentally, along with other economic data over the
past couple of months, speculation is now mounting on the possibility of
rate increases on the horizon.




DailyFX Research Team
Forex Capital Markets LLC
32 Old Slip, 10th Floor
New York, NY 10004
Tel (212) 897-7660
Fax (212) 897-7669
E-mail: research@dailyfx.com