USD Is Preferred Haven

USD remains firm ahead of today's FOMC minutes and amid ongoing EU concerns. UK PM Cameron put the situation in the euro area rather succinctly saying that “it either has to make up or face a potential breakup”. The dollar index is continuing its ascent towards mid-January highs after breaking a medium term bear channel. Economic data due out shortly incldes April housing starts which are forecast to gain by 4.7% m/m, building permits which are anticipated to fall by -4.5% m/m, and industrial production which is expected to show growth of 0.6%. The minutes from the April 24-25 FOMC meeting will be released at 1400ET and will provide insight into the whether or not the Fed discussed additional measures.

EUR is nearing the 2012 lows against the USD as the euro remains under pressure amid political instability in Greece. New elections are set for June 17 and until then Pikrammenos will head a caretaker government. Italy's trade surplus grew to €1.5B in March from the prior €0.4B, Euro zone CPI slowed to 2.6% in Apr. after growing at 2.7% the past several months. We would expect that inflation would have to slow further before the ECB lowers rates again, however as IMF head Lagarde noted yesterday the bank has margin to cut rates

CAD weakness is catching up to broader market moves of risk aversion. The Loonie has been resilient of late due to strong domestic fundamentals (such as Friday's labor report) and a relatively hawkish stance by the central bank, however the CAD appears to be succumbing to the risk-off environment. USD/CAD broke above long term horizontal resistance and the 200-day SMA with a move above 1.01 on the back of softer equities and falling oil prices. Immediate upside resistance is now around the 38.2% Fib level of the decline from Oct. highs to Apr. lows which is around 1.0130.

GBP declined against all of the G10 currencies except for the JPY as the Bank of England's quarterly inflation report showed a reduction in the growth outlook and below target inflation in two years. The unexpected decline of -13.7k (cons. +5.0k) in April jobless claims from the downwardly revised -5.4k in March and the surprising drop in the ILO unemployment rate to 8.2% from 8.3% (cons. 8.4%) did little to support the pound which dipped below the 1.59 figure against the USD. EUR/GBP is higher on the session and currently testing the 0.80 big figure.

JPY lower across the board despite the ongoing deterioration in sentiment. The Bank of Japan fell short of its planned ¥600B in purchases today with only ¥460.5B in bond buys as there was simply not enough short term debt to buy. This indicates that the BOJ may need to increase the maturity or composition of purchases. The yen was weaker as the bank may need to change its approach. UST yields have crept higher as well to support USD/JPY which is testing the top of its weekly ichimoku cloud around the 80.45/50 level.