FOREX: Focus Turns to US Data After China Sinks Risk Appetite

Sentiment trends are still in focus, with all eyes now focused on the US data calendar after hawkish comments from China's central bank fueled risk aversion overnight.

Overnight Headlines

• NZ Dollar Slumps as Hawkish PBOC Sinks Risky Assets Overnight
• Pound Reclaims 1.65 vs US Dollar, Euro Little Changed in Asia

Critical Levels

CCY	SUPPORT	RESISTANCE
EURUSD	1.4775	1.4949
GBPUSD	1.6397	1.6650

The Euro was little changed in overnight trade, dropping as much as 0.3 percent by mid-session but promptly erasing losses ahead of the opening bell in Europe. The British Pound edged higher, reclaiming its hold on the 1.65 figure.

Asia Session: What Happened

GMT	CCY	EVENT	ACT	EXP	PREV
22:45	NZD	Building Permits (MoM) (MAR)	2.2%	-	-9.8% (R-)
22:45	NZD	Net Migration s.a. (MAR)	-530	-	470
23:30	AUD	AiG Performance of Service Index (APR)	51.5	-	46.5
1:00	AUD	HIA New Home Sales (MoM) (MAR)	4.3%	-	0.6%

The New Zealand Dollar underperformed as stocks slumped in Asia, weighing heavily on the risk-linked currency. The MSCI Asia Pacific regional benchmark equity index (excluding Japan, where markets were closed today) dropped 1.3 percent after China's central bank said, “Stabilizing prices and managing inflation expectations are critical,” adding that bank reserve requirements have “no ceiling”. The aggressive comments spurred fears that Beijing will step up efforts to cool growth in the world's second-largest economy and a key export market for other Asian nations, slowing the progress on global and regional recoveries in the aftermath of the 2008 Great Recession.

Euro Session: What to Expect

GMT	CCY	EVENT	EXP	PREV	IMPACT
6:00	GBP	Nationwide House Prices n.s.a. (YoY) (APR)	-0.7%	0.1%	Medium
6:00	GBP	Nationwide House Prices s.a. (MoM) (APR)	0.1%	0.5%	Medium
7:15	EUR	French PMI Services (APR F)	63.4	63.4	Low
7:45	EUR	Italian PMI Services (APR)	53.0	53.3	Low
7:55	EUR	German PMI Services (APR F)	57.7	57.7	Low
8:00	EUR	Euro-Zone PMI Services (APR F)	56.9	56.9	Medium
8:00	EUR	Euro-Zone PMI Composite (APR F)	57.8	57.8	Medium
8:30	GBP	Net Lending Sec. on Dwellings (MAR)	1.3B	1.2B	Low
8:30	GBP	Net Consumer Credit (MAR)	0.6B	0.8B	Low
8:30	GBP	Mortgage Approvals (MAR)	48.0K	47.0K	Medium
8:30	GBP	M4 Ex OFCs 3M Annualized (MAR)	-	0.5%	Low
8:30	GBP	M4 Money Supply (YoY) (MAR)	-	-1.5%	Low
8:30	GBP	M4 Money Supply (MoM) (MAR)	-	-0.3%	Low
8:30	GBP	Purchasing Manager Index Construction (APR)	55.9	56.4	Medium
9:00	EUR	Euro-Zone Retail Sales (MoM) (MAR)	-0.1%	0.3%	Medium
9:00	EUR	Euro-Zone Retail Sales (YoY) (MAR)	0.0%	1.3%	Medium

Sentiment trends continue to guide the major currencies, with risk aversion seemingly poised to carry over from Asian trade into European hours and compound down downward pressure on stocks-correlated currencies. Macro themes appear to be at work, with ever forward-looking investors apparently already looking ahead to a world with materially higher yields as the Federal Reserve's QE2 expires. While the window of opportunity to fund bets on risky assets with cheap borrowing in US Dollars will not close until June and any move toward repositioning will almost certainly see some false starts before a full-fledged selloff gains momentum, the early signs of a larger bearish push appear to have already emerged.

Things are fairly tame on the data front. Euro Zone Retail Salesare expected to print flat in the year to March, snapping a two-month positive growth streak, while the UK Construction PMI gauge is set to show the growth in the home-building sector slowed for the second consecutive month in April. On balance, both readings stand to reinforce the sour mood already tipped to be taking hold across financial markets. Still, the US calendar promises to hold significantly more weight ahead of Friday's all-important Nonfarm Payrolls outcome, shining the spotlight on the preliminary ADP Employment report as well as the ISM Non-Manufacturing reading due late in European hours.

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