EUR and CHF Blast Off, Washington to Help Dollar?

Stops in EUR/USD and USD/CHF drove large moves in early Asia-Pacific trading as the dollar takes hits from all sides. Japanese inflation data was in-line with expectations and retail trade was on the strong side.

USD/CHF gapped nearly 100 pips lower to a record low of 0.8532 as broad dollar selling triggered stops. EUR/USD made an equally large move as it climbed to 1.4278. There doesnt appear to be any news underpinning the moves but there is talk of yield differentials and the disappointing GDP reading as continuing factors.

If the USD is to stage a rebound on Friday it may come from US legislators who are working on plans to cut down on regulation, reduce the cost of business and lower taxes. A story in the Washington Post details how policymakers are shifting into growth mode and we think its a theme that could gain traction in the day ahead.

April economic data from Japan showed y/y inflation increases for the first time in more than 2 years. The national CPI rose 0.3%, in-line with the consensus and above the 0.3% prior. The reading on ex food and energy was also in line at +0.6% y/y. Retail trade rose 4.1% in the month compared to the +2.6% consensus and -7.8% prior. The yen made small gains after the retail data.

Other news showed Chinese industrial profits rising 29.7% y/y in the first quarter compared to 32% in Q42010. In the UK, GfK consumer confidence UK improved to -21 from the -31 prior and -31 expected but the pound is lagging on dovish comments from the BOEs Posen.

In European trading, German regional CPI figures will trickle out throughout the day culminating with the national reading at around 1300 GMT. A flat reading is expected for April after a 0.2% rise in March. Trichets comments yesterday (see below) and a high reading may boost the euro on speculation of a late-Summer rate hike.