Mid-Day Report: Dollar Down Trend Resumes on Rising Commodity Prices

Dollar resumes recent broad based decline today as US stocks are set for modestly higher open. Further pressure is seen on the greenback as commodities extend recent rally, with Crude Oil breaching $60 level. Among the majors, Sterling is so far the bigger winner today on better than expected manufacturing production data. Meanwhile, Canadian dollar is catching up after release of wider than expected trade surplus. The Japanese yen, on the other hand, is rather steady in range except versus dollar.
Technically, dollar index takes out yesterday's low after brief recovery and is now getting rid of mentioned 82.19/62 cluster support zone. Intraday bias remains on the downside as long as 82.87 minor resistance holds. As mentioned before, based on anticipate of further rise in stocks and commodities, we are expecting further broad based weakness in the dollar with dollar index extending recent fall to 100% projection of 89.62 to 82.63 from 86.87 at 79.88. However, we ain't too bearish on the greenback in the longer term, based on the view that recent rallies in stocks and commodities are merely correction in the longer term down trend. Strong support is expected as the dollar index dips below 80 psychological level and should keeps it above 77.69 long term support.
Data released in US session saw US trade deficit widened less than expected to -27.6B in March. Canadian trade surplus widened more than expected to 1.1B CAD in March.
Better-than-expected output data were released in the UK. Manufacturing production dropped -0.1% mom, the smallest declines in 13 months, in March following a -0.3% (revised upward) fall a month ago. On annual basis, the reading contracted -12.9%, also better than consensus of -14% and -13.4% drop in February. The data showed that BOE's reduction in interest rates and asset purchase program may have provided positive impacts to the economy. Industrial production declined -0.6% mom in March, less than market expectation of -0.8% and an upwardly revised -0.7% a month ago. On yearly basis, the reading was down -12.4%, compared with consensus of -12.8% as well as an upgraded -12.3% in the previous month.
UK Trade deficit narrowed to 6.59B pound in March, compared with consensus of -7.25B pounds and 6.83B pound a month ago. The BRC retail sales posted the biggest rise since April 2006. Total retail sales soared +6.3% yoy in April after a +0.6% gain a month ago as driven by increase in sales in non-food items. DCLG house plummeted -13.6% in March after declining -12.3% a month ago. RICS house price balance plunged -59.9% in April (consensus: -70%), the highest since January 2008, after plunging -72.1% in March.
Germany finalized CPI for Apr is confirmed to be 0.0% mom and 0.7% yoy.
Australia's budget deficit will rise to AUD 57.6B, 4.9% of GDP in the 12 months through June 2010 as the government increases spending. Concerning economic outlook, the Government forecasts economy will contract -0.5% during fiscal year 2010 and grow 2.25% in fiscal 2011.