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Technically driven correction in German Bund
Global core bonds were under downward pressure in the European and early US session, due to technical selling and prepositioning of US 3-year Note auction. US treasuries erased losses after the auction and also supported by Bernanke's speech, which pushed equities lower.Dollar continues to struggle
On Tuesday, the underlying trends in the major currency cross rates remained in place. Recent poor US eco data suggest that the Fed won't be able to reduce policy stimulation anytime soon. This view was also confirmed by Fed's Bernanke, keeping the dollar near the recent lowsUS Equities gave up their gains yesterday as Fed Chairman Bernanke gave no hint of a new round of economic stimulus even as he recognized that the recovery slows. The S&P fell by 0.10%, the fifth straight decline. This morning, most Asian shares trade slightly down.Fed Chairman Ben Bernanke acknowledged yesterday that the US economy has slowed, but expects the economy to strengthen in the second half of the year. He warned that the job markets bears close monitoring, but offered no hint that the central bank is considering any more stimulus.At a press conference in Washington, US President Barack Obama recognized the US economy faced headwinds and said they would consider extending some of the stimulus measures enacted last year in the wake of growing evidence that the economic recovery had stalled.Spain has adopted overly optimistic economic growth assumptions and runs the risk of its public pension system destabilizing government finances, European Union official concluded in a report that could force the country on more reforms.The head of Moody's sovereign ratings group said yesterday it was hard to see how a private sector rollover of Greek debt would be truly voluntary and it would therefore likely constitute a default.Japan's current account surplus fell less than expected in April from a year earlier, fuelling hopes for an early economic recovery as manufacturers restore lost production and mend supply chains after the March disaster.Brent crude oil prices jumped yesterday above $117/barrel. Today OPEC meets in Austria, where they are expected to agree to raise supply, although the debate will probably be heated.Today, the eco calendar contains preliminary estimate of euro zone Q1 GDP, the German industrial production data and Greek unemployment rate. The US Federal Reserve will publish its Beige Book

On Tuesday, EUR/USD stayed well bid. Looking at the price action in most other cross rates and at the trade-weighted USD, yesterday's move was at least as much due to dollar weakness as euro strength. The poor US eco data of late and uncertainty on the Fed reaction to this factor continued to pressure the US currency.

There was again no big news to steer EUR/USD trading yesterday. Sentiment on risk turned less negative after the recent correction on the equity markets. However, it would be an exaggeration to see yesterday's 'improvement' in risk sentiment as a good reason for additional euro gains. The gains on European equities simply were insignificant compared to the recent decline. The European eco data (EMU retail sales and German factory orders) were better than expected, but they can't be used as an explanation for the gains of the euro as most of these gains were realised before the publication of the data. Greece of course remained on the headlines. Moody's said that a rollover of Greek debt would probably be a default. However, even these headlines were largely ignored. So, trading was for a big part order-driven but at the same time, ongoing dollar weakness was probably at least a good an explanation. Interest rate differentials continue to be dollar negative as both short- and long term (10y) US bond yields are currently below their German counterparts. It is still a very long call, but the debate on the need for QE3 is swirling in the markets. This is no help for the US currency. In speech, Fed's Bernanke acknowledged that the economy is still producing at levels well below its potential and that accommodative monetary policies are still needed. However, he didn't hint for a next round of monetary stimulus. With respect to the (weakness) of the US currency, he suggested that this was due to low US growth (higher oil prices) and the US trade deficit. He also indicated that supporting maximum employment growth and price stability is the best way to support the fundamental value of the US dollar and repeated the Fed's commitment to do so. The least one can say is that Bernanke didn't give any hint that the Fed is unhappy with the current valuation of the US currency. EUR/USD closed the session near the intraday highs at 1.4691, compared to 1.4576 on Monday evening.

Today, the calendar in the US is again thin, except for two Fed speeches and the 10- year Note Auction. After the close of the European markets, the Fed's Beige Book preparing the July 22 Fed meeting, will be published. In Europe, the EMU Q1 GDP and the German industrial production data will be published. The data will probably only be of intraday importance. So, at the start of this session, the context doesn't look that much different from yesterday morning except that sentiment on risk is a bit more negative. Greece/the EMU debt crisis remain wild card. The dollar continues to fight an uphill battle across the board. Investors will also look forward to tomorrow's ECB meeting. With expectations for the ECB to signal a next step in the normalisation of monetary policy at tomorrow's price conference, the downside in EUR/USD might be rather well protected.

We had a LT bullish strategy for the EUR/USD cross rate based on the different policy approach between the ECB and the Fed. However, after a long rally since early this year, a forceful correction started early May as the ECB fell short of signalling a rate hike in June as markets expected. Renewed uncertainty on Greece and the commodity correction reinforced the repositioning in EUR/USD. Since mid May, the pair gradually bottomed out. Last week, the rebound gained momentum. The rebreak of the 1.4345/1.4442 area called off the short-term alert and improved the short-term picture. Accordingly, we changed our short-term bias from negative to neutral. Next upside targets are in 1.4722 (2nd target off 1.4345) and at 1.4940 (year high). We assume that a break beyond the year high would be difficult

EUR/USD: Bernanke's soft speak no help for the dollar

Support comes in at 1.4641 (Reaction low), at 1.4614/08 (Breakup hourly/STMA), at 1.4557 (Reaction low), at 1.4538 (Break-up hourly), at 1.4515 (Break-up daily) and at 1.4450 (Reaction low hourly).

Resistance stands at 1.4696/01 (Reaction high/Daily Boll top), at 1.4710/22 (76% Retracement /2nd Target double bottom) and at 1.4775(Breakdown daily), at 1.4794/01 (Weekly/daily envelope) and at 1.4845 (Daily Starc top).

The pair is in overbought territory.

On Tuesday, USD/JPY simply did what it was already doing for quite some time. The downward pressure on the dollar persisted and the pair held within striking distance of the recent lows for most of the session. The soft tone of Bernanke on the economy and on monetary policy pushed the pair again to the 80.00 area at the end of the day. The cross rate ended the trading session at 80.09, almost unchanged from the 80.10 close the previous day.

This morning, the Japanese current account deficit declined less than expected (April). This might be an indication that the negative impact of the earthquake might be less than initially feared. Asian equity markets are mostly slightly lower this morning. USD/JPY dipped below the 80 mark this morning, but tries to regain this psychological barrier at the moment of writing.

In April and early May, USD/JPY developed an almost uninterrupted decline off from the early April correction high at 85.53. The move was a correction on the sharp decline of the yen, but also mirrored underlying global dollar weakness. We looked to pick up the USD/JPY cross rate in the 80/81 area. So, we installed a tactical USD/JPY long position as this area was reached last month. The story on USD/JPY remains ambiguous. Recently, overall dollar weakness also weighed on this cross rate and is pushing the cross rate to the bottom of the 79.57/82.23 trading range. We maintain a cautious positive bias for this cross rate. Stop-loss protection to defend return action below 80.00/79.57 area remains warrante

USD/JPY: testing the range bottom

Support comes in at 79.81/75 (Daily Boll Bottom/Reaction low), at 79.79 (Monthly envelope), at 79.67/57 (Broken daily Channel top/Reaction low), at 79.50/36 (Weekly envelope/Weekly Boll bottom) and at 79.17 (2nd target off 80.70).

Resistance is seen at 80.26/40 (Daily STMA/reaction high), at 80.77/80 (Weekly STMA/Breakdown hourly), at 80.97/09 (MTMA/LTMA +Boll Midline) and at 81.77 (Reaction high).

The pair is in oversold territory

On Tuesday, EUR/GBP still kept an eye on the price swings in the EUR/USD headline pair. However, this time, the pair was not able to fully join the gains in EUR/USD as a big selling order pushed EUR/GBP temporary lower at the start of trading in Europe. The pair dipped temporary to the 0.8910 area, but still managed to close the session in positive territory at 0.8932 to 0.8911 on Monday.

Overnight, the BRC shop price inflation dropped from 2.5% in April to 2.3% in May. This suggests underlying weakness in this part of the UK economy. EUR/GBP hardly reacted to the release. Nevertheless, also in this cross rate, the downside looks still well protected. Later today, there are no important eco data on the agenda in the UK.

We have a LT EUR/GBP bullish view. The ECB's firmness to rein in inflation contrasts with the BoE MPC's attitude of postponing a rate hike despite ongoing skyhigh inflation readings. The EUR-GBP interest rate differential increased accordingly and pushed the pair beyond the 0.90 mark early May. After the May ECB press conference, a forceful correction kicked in and the pair extensively tested the 0.8715/0.8654 support area (previous lows). At that point, we reinstalled a buy-ondips approach in line with our LT sterling negative bias. A cautious rebound started. Last week, the rebound finally gained momentum, suggesting that the downside has become again better protected. For now, the picture in this cross rate remains constructive. The 0.9043 reaction high is the next high profile target on the charts.

EUR/GBP stays well bid

Support comes in at 0.8918 (Daily envelope), at 0.8908/05 (Reaction low hourly/STMA), at 0.8893 (Reaction low), 0.8863 (Break-up daily), at 0.8846/43 (Neckline double bottom/reaction lows) and at 0.8783 (Weekly envelope).

Resistance is seen at 0.8945/54 (Reaction high/Daily Boll top), at 0.8978/85 Breakdown daily/daily envelope), at 0.8990/06(Weekly envelop/Weekly Boll top) and at 0.9043 (Reaction high).

The pair is in overbought territory.

Euro zone retail sales surprised on the upside of expectations in April. On a monthly basis, retail sales rose by 0.9% M/M, after a 0.9% M/M decline in March, while the consensus was looking for an increase by only 0.3% M/M. The breakdown shows that sales of both food, drink & tobacco (0.7% M/M) and non-food products (0.8% M/M) jumped in April, probably boosted by Easter and the Easter Holidays. Due to the late timing of Easter and the Easter Holidays, they were probably not fully captured by the seasonal adjustment factors. National data show a strong rebound in Portugal (2.9% M/M) and retail sales were also strong in Belgium (2.0% M/M), France (1.4% M/M), Spain (0.8% M/M) and Germany (0.6% M/M). Retail sales rose at the sharpest monthly pace in more than a year, which is an encouraging sign and a good start to the second quarter, but we fear that a fall-back is likely in May after the Easter-related boost in April.

German factory orders rebounded by 2.8% M/M in April, beating the market consensus which was looking for an increase by 2.0% M/M. The previous figure was significantly upwardly revised, from -4.0% M/M to -2.7% M/M. The details show that the rebound was led by orders from foreign non-euro zone countries (5.3% M/M), but also domestic orders rose significantly (by 2.1% M/M). Orders from other euro zone countries show a more moderate increase (by 0.7% M/M). Orders for capital (4.9% M/M) and consumer (3.6% M/M) goods rose sharply in April, but intermediate goods orders fell slightly (-0.3% M/M). The most recent manufacturing PMI showed a significant slowdown in activity, suggesting that growth has peaked in the first quarter, which will probably translate soon into an easing in orders.

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