Can the euro extend its gains (page 2 of 2)

With factory orders and industrial production turning negative, it would be a surprise if business sentiment managed to improve.

Meanwhile Switzerland reported a 9.7% rise in adjusted retail sales. Although the headline number is encouraging, it is distorting because the work day adjusted number actually dropped 2.5% yoy, meaning that Easter was the primary reason for the strength.

British pound: strength to be tested

The recent strength of the British pound will be tested next week by the busy economic calendar.

After hitting an intraday low of 1.9363 earlier this week, the currency has carved out a near term bottom against the US dollar. Like the rest of the world, the only reason why the central bank has stopped cutting rates is because of inflation.

Even though the labour market deteriorated for the fourth straight month, the British pound gained strength because both consumer and producer prices increased more than the market expected last month.

The minutes from the latest Bank of England meeting will be released next week. Although they left interest rates unchanged at 5%, the key will be their voting record.

At the prior meeting 6 members supported the 25bp rate cut, one member called for a 50bp rate cut while another called for no easing at all. We suspect that more members would have favoured the most recent pause.

In addition to the BoE minutes, we are also expecting UK retail sales and the second release of first quarter GDP.

Australian dollar hits 24 year high, Canadian Dollar in focus next week

The Australian dollar hit a 24 year high against the US dollar and a 1.5 year high against the New Zealand dollar. The currency's surprising strength came from the $20 surge in gold prices and rumours that China could invest as much as $22bn in a joint venture with an Australian fund to purchase a 9% stake in mining giant BHP Billiton.

China's thirst for commodities is no secret and acquisitions of commodity companies have been their preferred way of spending their $1.68 trillion of foreign exchange reserves. Next week, the Canadian dollar will be a big focus with consumer prices and retail sales due for release. There is no significant data from Australia or New Zealand.

US consumer confidence pushes USDJPY back below 105

For the past two trading days, USDJPY has been flirting with the 105 price level. The currency pair finally caved after the much weaker than expected consumer confidence report.

Risk appetite will dominate trading for the Yen in the coming week as we expect the Bank of Japan monetary policy and trade data to have little affect on the Japanese Yen.