FOREX: Dollar Attempts a Weak Recovery on In-Line 1Q GDP Reading, Risk Trends Still the Critical Catalyst

The dollar nearly won its first bullish close this week through Thursday's close; but a positive bearing on the benchmarks for risk appetite would prevent such relief. Without a meaningful position of fundamental support for the greenback, there is little will to fight such a prevalent trend. Over the past eight trading days, the greenback has dropped through seven of those sessions and subsequently lost as much as 3.9 percent of its value on a trade-weighted basis.

• Dollar Attempts a Weak Recovery on In-Line 1Q GDP Reading, Risk Trends Still the Critical Catalyst
• Euro Maintains its Advance as we Start Talking Rate Expectations Once Again
• Canadian Dollar Readies for February GDP, Though Oil has the Greater Potential
• Japanese Yen Firms after the Bank of Japan Decides to Keep Stimulus on Hold
• New Zealand Dollar Tumble Doesn't Let Up after the RBNZ Signals No Rate Hikes for the Near Future
• Gold Nudges a Fresh Record High Despite the Dollar, GDP and Inflation Offer Backup Support

Dollar Attempts a Weak Recovery on In-Line 1Q GDP Reading, Risk Trends Still the Critical Catalyst

The dollar nearly won its first bullish close this week through Thursday's close; but a positive bearing on the benchmarks for risk appetite would prevent such relief. Without a meaningful position of fundamental support for the greenback, there is little will to fight such a prevalent trend. Over the past eight trading days, the greenback has dropped through seven of those sessions and subsequently lost as much as 3.9 percent of its value on a trade-weighted basis. That said, the progress from the majors Thursday didn't offer a convincing account of further dollar selling. The major European currencies managed very slight gains against the dollar – the euro 37 pips, British pound 6 pips and the Swiss franc 10 pips. Neither did the high-yield group do well with the Australian dollar posting the only gain; while its New Zealand and Canadian counterparts closed lower on the day. Only USDJPY would activity that was in line with the past few weeks with a 62 pip drop.

This reserved level of activity for the dollar was not particularly surprising as risk appetite trends were fully restrained through Thursday's trading session. Investor sentiment is the currency's primary catalyst – and it has been primarily a bearish one through as sentiment has advanced while yield potential has all but disappeared. For calendar items, some may have put their hopes into volatility generated through the US first quarter GPD report. This reading could certainly rouse activity; but not through a direct influence on the greenback. Relative growth has fallen to the wayside as a catalyst as advanced and emerging economies alike have shown progress in their recovery. The real potential for the data rested with its influence over sentiment trends; but those two would come up short.

A cursory glance at the advance, first quarter GDP reading would tell us that the indicator fell in line with expectations. The 1.8 percent pace of annualized growth met the popular consensus. Yet, a closer inspection offered a few points of encouragement and disappointment. For those concerned about the United States' immediate future (some are even speculating on a quarterly contraction sometime this year), the fact that when the $43.8 billion inventory increase was excluded from the number the economy grew a sparse 0.8 percent tells of a flimsy recovery. Yet, the biggest drop in government spending since 1983 (5.2 percent) had more than a little to do with that performance. Alternatively, personal consumption rose a robust 2.7 percent while the inflation component hit a 1.9 percent clip. All-in-all, the economy is showing a restrained but otherwise solid recovery. Nothing to really shake the picture for risk trends. The same stagnation will likely carry through the final trading hours this week as the top event risk (March personal consumer and spending data) was covered in the GDP figures and sentiment trends aren't facing any specific threats.

Related:Discuss the Dollar in the DailyFX Forum, John's Video: GBPUSD is at the Epicenter of the FOMC and UK GDP Event Risk

Euro Maintains its Advance as we Start Talking Rate Expectations Once Again

Yield appetite is the euro's best trend; but that wasn't a major catalyst through Thursday's trading session. So, in the absence of a market-derived boost, the shared currency looked to improve its own fortunes. German labor data for April met the consensus forecast; but that still seemed to impress the market. The 37,000-person drop in unemployment drop in unemployment lowered the total number of jobless below 3 million for the first time in 19 years. For the euro, good news carries greater weight than the bad; so it doesn't surprise that a report of Banco Santander (Spain's largest bank) posting a 5 percent drop in profit was overlooked by the market. However, we should take this into consideration for our medium-term outlook. There is supposedly a ‘fire break' with Spain when it comes to the spreading of the European sovereign debt crisis; but the country is still facing trouble with the funding of its savings banks (cajas) and the reality that real estate losses have been continuously deferred rather than being realized. Significant risk is still there; all it takes is for the market to pay attention.

In the final trading session of the week, we will assess the impact of German retail sales, Euro Zone economic confidence and unemployment; as well as the advance EC CPI estimate for April. The inflation figure carries the most weight given the market's predilection for return and the fact that we have an ECB rate decision next week. Will there be enough from this data to raise rate expectations?

Canadian Dollar Readies for February GDP, Though Oil has the Greater Potential

For scheduled event risk, the Canadian dollar may very well hold the most influential data amongst the majors in the February GDP reading. Expectations are for a stalled performance through the month; but that doesn't offset the general, bullish pace of the past two years. In reality, if oil prices finally broke above $115, it would have greater impact on the loonie than a significant deviation on the growth report.

Japanese Yen Firms after the Bank of Japan Decides to Keep Stimulus on Hold

Much like it is hard to reconcile the strength of the euro given its financial troubles, the Japanese yen's performance seems to run counter its long-term debt, growth and yield outlook. Helping the funding currency through the end of this week is the BoJ's decision to keep its asset purchasing and credit programs unchanged. On the other hand, this is about as much consolation as their forecast for 0.7 percent CPI in 2011.

New Zealand Dollar Tumble Doesn't Let Up after the RBNZ Signals No Rate Hikes for the Near Future

After RBNZ Governor Alan Bollard warned of an “uncertain” outlook for the New Zealand economy and telegraphed his intention to hold rates for the foreseeable future, the kiwi dollar fell off and maintained its losses. A general rise in risk appetite can lift currencies with a comparatively high yield; but if the kiwi's larger and more stable cousin (the Aussie dollar) is yielding a significant premium, that capital will be redirected.

Gold Nudges a Fresh Record High Despite the Dollar, GDP and Inflation Offer Backup Support

Despite the dollar's temperate performance Thursday and risk appetite trends' unremarkable day, gold was still pushing higher. It is important to remember that while the metal attracts capital flowing away from fiat assets (currencies, bonds, etc); it is also an attractive trade in its own right with remarkable gains that few other markets can match. That said, the disappointing aspects of growth and rising inflation certainly help.

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

GMT	Currency	Release	Survey	Previous	Comments
0:30	AUD	RP Data-Rismark House Px (MoM) (MAR)		0.0%	Slower growth may mean cooling Australian prices
0:30	AUD	RP Data-Rismark House Px MoM N (MAR)		0.7%
1:30	AUD	Private Sector Credit (YoY) (MAR)	3.3%	3.4%	Increased credit would mean continued velocity of money, lending despite increasing interest rates
1:30	AUD	Private Sector Credit (MoM) (MAR)	0.4%	0.5%
1:35	CNY	MNI Business Condition Survey (APR)		69.33	Expected to decline as PBoC tries to cool growth to battle inflation
2:30	CNY	HSBC Manufacturing PMI (APR)		51.8
3:00	NZD	Money Supply M3 (YoY) (MAR)		5.2%	M3 expected to rise after lower rates
6:00	EUR	Germany Retail Sales MoM (MAR)	0.2%	-0.4%	Retail sales pick up in two largest economies in EU, may add increasing pressure on ECB to continue rate increases in near future
6:00	EUR	Germany Retail Sales YoY (MAR)	1.4%	1.1%
6:45	EUR	French Producer Prices (MoM) (MAR)	0.7%	0.8%
6:45	EUR	French Producer Prices (YoY) (MAR)	6.4%	6.3%
8:00	EUR	Italian Unemployment Rate (SA) (MAR)	8.4%	8.4%	Still near record highs
8:00	EUR	Euro-Zone M3 s.a. (3M) (MAR)	1.9%	1.7%	Sales of bonds and liabilities to increase M3 supply
8:00	EUR	Euro-Zone M3 s.a. (YoY) (MAR)	2.2%	2.0%
9:00	EUR	Euro-Zone CPI Estimate (YoY) (APR)	2.7%	2.6%	Led by growing sales in Germany, FR
9:00	EUR	Euro-Zone Business Climate Indicator (APR)	1.4	1.41	Confidence seen to fall slightly from previous as risk in periphery countries still persist, looking towards Spain
9:00	EUR	Euro-Zone Consumer Confidence (APR)	-11.4	-11.4
9:00	EUR	Euro-Zone Economic Confidence (APR)	107	107.3
9:00	EUR	Euro-Zone Industrial Confidence (APR)	6.6	6.6
9:00	EUR	Euro-Zone Services Confidence (APR)	10.5	10.8
9:00	EUR	Euro-Zone Unemployment Rate (MAR)	9.9%	9.9%	Slowing growth in EU not expected to greatly impact unemployment
9:00	EUR	Italian CPI (NIC incl. tobacco) (MoM) (APR)	0.3%	0.4%	Italian CPI expected to grow slower as consumers cut back on personal consumption rates
9:00	EUR	Italian CPI (NIC incl. tobacco) (YoY) (APR)	2.4%	2.5%
9:00	EUR	Italian CPI - EU Harmonized (MoM) (APR)	0.7%	2.2%
9:00	EUR	Italian CPI - EU Harmonized (YoY) (APR)	2.6%	2.8%
9:30	CHF	KOF Swiss Leading Indicator (APR)	2.2	2.24	Manufacturing production seen hit by strong Franc
10:00	EUR	Italian Producer Price Index (YoY) (MAR)		5.7%	PPI change expected to decline in tandem with CPI
10:00	EUR	Italian Producer Price Index (MoM) (MAR)		0.6%
12:30	CAD	Gross Domestic Product (YoY) (FEB)	3.1%	3.3%	Growth rate surveyed to slow as investment declines
12:30	CAD	Gross Domestic Product (MoM) (FEB)	0.0%	0.5%
12:30	USD	Personal Consumption Exp Core (MoM) (MAR)	0.1%	0.2%	Personal consumption expected to grow at a slower pace, confirming Fed's view of a slower recovery in early part of year
12:30	USD	Personal Consumption Exp Core (YoY) (MAR)	0.9%	0.9%
12:30	USD	Personal Income (MAR)	0.4%	0.3%
12:30	USD	Personal Spending (MAR)	0.5%	0.7%
12:30	USD	Personal Consumption Exp Deflator (YoY) (MAR)	1.9%	1.6%
12:30	USD	Employment Cost Index (1Q)	0.5%	0.4%	First quarter growth should be confirmed by large rate of hires
13:45	USD	Chicago Purchasing Manager (APR)	68.5	70.6	Major confidence measures expect a decline in level as growth slows
13:55	USD	U. of Michigan Confidence (APR)	70	69.6
14:00	USD	NAPM-Milwaukee (APR)	63	66
	CNY	Leading Index (MAR)		101.05	Expected to decline as a result to new PBoC measures to slow economy

GMT	Currency	Upcoming Events & Speeches
16:30	USD	Fed's Bernanke Speaks at Fed Community-Affairs Conference

SUPPORT AND RESISTANCE LEVELS

CLASSIC SUPPORT AND RESISTANCE - 18:00 GMT

Currency	EUR/USD	GBP/USD	USD/JPY	USD/CHF	USD/CAD	AUD/USD	NZD/USD	EUR/JPY	GBP/JPY
Resist 2	1.5160	1.6750	89.00	0.9345	1.0275	1.1800	0.8400	127.60	146.05
Resist 1	1.4795	1.6600	86.00	0.8900	1.0000	1.1000	0.8215	125.90	140.00
Spot	1.4823	1.6645	81.55	0.8728	0.9514	1.0914	0.8010	120.87	135.74
Support 1	1.4000	1.6200	80.00	0.8700	0.9500	1.0400	0.7825	115.70	125.00
Support 2	1.3700	1.5750	75.00	0.8600	0.9055	1.0200	0.6850	105.50	119.00

CLASSIC SUPPORT AND RESISTANCE –EMERGING MARKETS 18:00 GMTSCANDIES CURRENCIES 18:00 GMT

Currency	USD/MXN	USD/TRY	USD/ZAR	USD/HKD	USD/SGD		Currency	USD/SEK	USD/DKK	USD/NOK
Resist 2	13.8500	1.6575	7.4025	7.8165	1.3650		Resist 2	7.5800	5.6625	6.1150
Resist 1	12.5000	1.6300	7.3500	7.8075	1.3250		Resist 1	6.5175	5.3100	5.7075
Spot	11.5507	1.5245	6.6146	7.7687	1.2289		Spot	6.0135	5.0314	5.2445
Support 1	11.5200	1.5040	6.5575	7.7490	1.2145		Support 1	6.0800	5.1050	5.3040
Support 2	11.4400	1.4725	6.4295	7.7450	1.2000		Support 2	5.8085	4.9115	4.9410

INTRA-DAY PIVOT POINTS 18:00 GMT

Currency	EUR/USD	GBP/USD	USD/JPY	USD/CHF	USD/CAD	AUD/USD	NZD/USD	EUR/JPY	GBP/JPY
Resist 2	1.4938	1.6797	82.62	0.8798	0.9556	1.1001	0.8134	122.47	137.63
Resist 1	1.4880	1.6721	82.09	0.8763	0.9535	1.0957	0.8072	121.67	136.69
Pivot	1.4825	1.6671	81.74	0.8726	0.9500	1.0905	0.8022	121.04	136.11
Support 1	1.4767	1.6595	81.21	0.8691	0.9479	1.0861	0.7960	120.24	135.17
Support 2	1.4712	1.6545	80.86	0.8654	0.9444	1.0809	0.7910	119.61	134.60

INTRA-DAY PROBABILITY BANDS 18:00 GMT

\Currency	EUR/USD	GBP/USD	USD/JPY	USD/CHF	USD/CAD	AUD/USD	NZD/USD	EUR/JPY	GBP/JPY
Resist. 3	1.5004	1.6800	82.50	0.8834	0.9603	1.1057	0.8119	122.69	137.77
Resist. 2	1.4959	1.6762	82.26	0.8808	0.9581	1.1021	0.8092	122.24	137.26
Resist. 1	1.4913	1.6723	82.02	0.8781	0.9559	1.0986	0.8065	121.78	136.76
Spot	1.4823	1.6645	81.55	0.8728	0.9514	1.0914	0.8010	120.87	135.74
Support 1	1.4733	1.6567	81.08	0.8675	0.9469	1.0842	0.7955	119.96	134.73
Support 2	1.4687	1.6528	80.84	0.8648	0.9447	1.0807	0.7928	119.50	134.23
Support 3	1.4642	1.6490	80.60	0.8622	0.9425	1.0771	0.7901	119.05	133.72

v

Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com

To receive John's reports via email or to submit Questions or Comments about an article; email jkicklighter@dailyfx.com