FOREX: US Dollar: Dollar to See Volatility on Housing data, FOMC in Days Ahead

The US Dollar started off the week on a softer note as euro and the Swissie advanced throughout the US session. Disappointing economic data released this morning showed Empire manufacturing slipping to 11.88, missing expectations for a read of 19.55.

• US Dollar: Dollar to See Volatility on Housing data, FOMC in Days Ahead
• Euro Tracks S&P 500 as Correlation Trades Near Record High
• British Pound Unchanged Ahead of Key CPI, BoE Minutes
• Australian Dollar to see Sharp Moves on Reserve Bank of Australia Minutes
• Government Policy Guidelines Fails to Soften Yen
• Swiss Franc Top Performer on Euro Zone Debt Fears

US Dollar: Dollar to See Volatility on Housing data, FOMC in Days Ahead

The US Dollar started off the week on a softer note as euro and the Swissie advanced throughout the US session. Disappointing economic data released this morning showed Empire manufacturing slipping to 11.88, missing expectations for a read of 19.55. The print is the lowest read on the survey since January, and comes on the heels of a 12-month high reported last month at 21.7. The data was followed by another weaker than expected print on the NAHB housing market index which held at 16, missing calls for a print of 17. The net result was to leave the Dow Jones FXCM Dollar Index as much as 0.8 percent off of overnight highs before a later bounce. The dollar now becomes vulnerable as traders cite euro shorts squaring their positions.

Tomorrow's economic diary will be closely eyed by investors, with April housing starts expected to print at 3.6%, down from a the previous read of 7.2% in March. Building permits are expected to see a larger slowdown with consensus estimates calling for a print of just 0.9%, down from a firm 11.2% a month earlier. Later in the day, industrial production data is expected to show a gain of just 0.4% in April, confirming fears of a slowdown as traders anticipate the completion of QE2 next month.

Related:Dow Jones FXCM Dollar Index Eases on Euro Gains, Discuss the Dollar in the DailyFX Forum

Euro Tracks S&P 500 as Correlation Trades Near Record High

The Euro bounced noticeably off of recent lows against the resurgent Greenback, but a late-day reversal warns that the single currency could remain within its short-term downtrend channel through the coming days of trade. Overnight data showed Euro Zone Consumer Price Index inflation figures in line with forecasts but considerably above the European Central Bank's stated target of 2.0 percent. At 2.8 percent on a year-over-year basis, Overnight Index Swaps show expectations of fairly aggressive ECB rate hikes through the coming 12 months. Interest rates remain a focus for the single currency, and markets could react to the morning's German ZEW Economic Sentiment figures due at 09:00 GMT.

The real difference-maker for the euro remains broader financial market ‘risk', however; we see its correlation to the S&P 500 trade near record-highs. Sharp S&P futures losses after the NYSE close warn that short-term momentum favors the downside for the S&P and Euro alike.

British Pound Unchanged Ahead of Key CPI, BoE Minutes

The sterling closed out the New York session virtually flat against the greenback ahead of inflation data tomorrow and more importantly, the release of the BoE minutes from the latest policy meeting on Wednesday. With inflation concerns around Europe continuing to mount, greater emphasis will be put on tomorrow's report, with Wednesday's BoE minutes proving traders with a better picture as to where the committee stands on rates. MPC voters find themselves in a difficult position with regards to agreeing to move on interest rates. Although recent data out of the UK continues to suggest sluggish growth, pressure on the committee may mount as other European policy makers remain focused on addressing high rising inflation. With Andrew Sentance stepping down this month, investors are anxious to see the tally of the May 5th vote to hold rates at 0.5%. If the spread has widened, it may become increasingly difficult for the hawkish camp to gain traction without their most vocal member. The pound held above key support at the 1.6170 support level after failing to break through interim resistance at 1.6250. A higher than forecasted inflation print tomorrow could see expectations for a rate hike from the central bank rise, providing the sterling with some lift.

Australian Dollar to see Sharp Moves on Reserve Bank of Australia Minutes

The Australian Dollar finished the day roughly flat against its US namesake, but AUDUSD volatility could pick up on the release of Reserve Bank of Australia meeting minutes at 01:30 GMT. RBA Governor Glenn Stevens struck a relatively balanced tone following the bank's decision to leave interest rates unchanged through its May 3rd meeting, and traders will look to further elaboration on the bank's stance through upcoming minutes. That said, it may take particularly surprising rhetoric to force major Aussie dollar moves. Overnight Index Swaps show that markets predict the RBA will raise rates slowly if at all with a cumulative 31bps in hikes through the coming 12 months. Markets will in particular look for clarity on the RBA's closing line of the statement: “In future meetings, the Board will continue to assess carefully the evolving outlook for growth and inflation.”

Government Policy Guidelines Fails to Soften Yen

The Japanese yen was marginally higher against the greenback throughout the US trading session, with the pair resting just above interim support at 80.50. Traders remain wary of propping the yen too high, too quickly as concerns about a possible coordinated G7 FX intervention continued to mount after the government released a draft of its policy guidelines today. Officials stressed that a stable yen was crucial for one of the world's leading exporters as the fragile economy struggles to cope with aftermath of the recent disasters. Economic data on Wednesday is widely anticipated as consensus estimates call for an annualized contraction of 1.9% in GDP, while the quarter on quarter print is expected to show an accelerated 0.5% contraction. The yen is likely to remain supported as traders test the resolve of government policymakers.

Swiss Franc top Performer on Euro Zone Debt Fears

The Swiss Franc was the top-performing G10 currency despite an effectively empty economic calendar, rallying as a safe-haven alternative to the Euro amidst a broader US Dollar correction. The EURCHF remains the proxy of choice for trading Euro Zone fiscal crises. Portugal and Irish bond yields pulled back slightly as the currency bloc formally approved Portugal's financial aid. Yet continued uncertainty surrounding Greece kept its government bond prices near lows. We expect the EURCHF to continue tracking ‘risk' through the foreseeable future.

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

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ECONOMIC DATA

Next 24 Hours

GMT	Currency	Release	Survey	Previous	Comments
2:00	CNY	Actual FDI (YoY) (APR)	36.1%	32.9%	Foreign investment grow faster as domestic investment slows
6:00	JPY	Machine Tool Orders (YoY) (APR)		32.3%	May follow March orders higher
6:00	EUR	EU 25 New Car Registrations (APR)		-5.0%	Risk cut new car purchases
8:30	GBP	DCLG UK House Prices (YoY) (MAR)		0.7%	Higher prices may indicate inflation
8:30	GBP	Consumer Price Index (MoM) (APR)	0.7%	0.3%	Higher CPI may not budge BoE's position to take a slower stance to not impede recovery
8:30	GBP	Consumer Price Index (YoY) (APR)	4.1%	4.0%
8:30	GBP	Core Consumer Price Index (YoY) (APR)	3.2%	3.2%
8:30	GBP	Retail Price Index (MoM) (APR)	0.8%	0.5%	Near-term RPI expected to increase pushed by commodities prices
8:30	GBP	Retail Price Index (YoY) (APR)	5.2%	5.3%
8:30	GBP	Retail Price Index (APR)	234.6	232.5
8:30	GBP	RPI Ex Mort Int.Payments (YoY) (APR)	5.3%	5.4%
9:00	EUR	German ZEW Current Situation (MAY)	87.5	87.1	Sentiment expected to fall as periphery concerns once again arise
9:00	EUR	German ZEW Economic Sentiment (MAY)	4.5	7.6
9:00	EUR	Euro-Zone ZEW Econ Sentiment (MAY)	17.3	19.7
12:30	CAD	Int'l Securities Transactions CAD (MAR)	5.0B	2.502B	Suggests large inflow of foreign cash
12:30	USD	Housing Starts (MAY)	568K	549K	Construction-side indicators suggest slower recovering domestic real estate sector as Fed may raise interest rates
12:30	USD	Housing Starts (MoM) (MAY)	3.5%	7.2%
12:30	USD	Building Permits (MAY)	590K	585K
12:30	USD	Building Permits (MoM) (MAY)	0.3%	11.2%
13:15	USD	Industrial Production (MAY)	0.4%	0.8%	Lower larger orders may cut into industrial production
13:15	USD	Capacity Utilization (MAY)	77.6%	77.4%
22:45	NZD	Producer Prices- Inputs (QoQ) (1Q)		0.9%	Producer prices may also rise due to higher commodities prices
22:45	NZD	Producer Prices- Outputs (QoQ) (1Q)		0.2%
23:50	JPY	Tertiary Industry Index (MoM) (MAR)	-5.8%	0.8%	Earthquake seen to hit services hard

GMT	Currency	Upcoming Events & Speeches
1:30	AUD	Reserve Bank of Australia Meeting Minutes
6:30	EUR	EU Finance Ministers Summit in Brussels

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	116.80	146.05
Resist 1	1.5000	1.6600	86.00	0.8900	1.0000	1.1000	0.8215	115.20	140.00
Spot	1.4163	1.6199	80.78	0.8841	0.9750	1.0565	0.7808	114.41	130.85
Support 1	1.4000	1.6160	80.00	0.8600	0.9500	1.0400	0.7745	113.80	125.00
Support 2	1.3700	1.5750	75.00	0.8500	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	11.7658	1.5915	7.0036	7.7769	1.2506		Spot	6.3560	5.2649	5.5742
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	1.4349	1.6300	81.26	0.9015	0.9822	1.0703	0.7932	116.16	132.02
Resist 1	1.4256	1.6249	81.02	0.8928	0.9786	1.0634	0.7870	115.29	131.44
Pivot	1.4152	1.6205	80.83	0.8864	0.9735	1.0574	0.7813	114.35	130.92
Support 1	1.4059	1.6154	80.59	0.8777	0.9699	1.0505	0.7751	113.48	130.33
Support 2	1.3955	1.6110	80.40	0.8713	0.9648	1.0445	0.7694	112.54	129.82

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	1.4353	1.6364	81.69	0.8954	0.9851	1.0715	0.7920	116.31	132.90
Resist. 2	1.4306	1.6323	81.46	0.8926	0.9825	1.0677	0.7892	115.83	132.39
Resist. 1	1.4258	1.6282	81.24	0.8897	0.9800	1.0640	0.7864	115.36	131.88
Spot	1.4163	1.6199	80.78	0.8841	0.9750	1.0565	0.7808	114.41	130.85
Support 1	1.4068	1.6116	80.32	0.8785	0.9700	1.0490	0.7752	113.46	129.83
Support 2	1.4020	1.6075	80.10	0.8756	0.9675	1.0453	0.7724	112.99	129.31
Support 3	1.3973	1.6034	79.87	0.8728	0.9649	1.0415	0.7696	112.51	128.80

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Written by: David Rodriguez, Quantitative Strategist and Michael Boutros, Currency Analyst for DailyFX.com

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