Euro Drops a Full cent, BoC, ISM Awaited

RBA cuts 25 bps; Eurozone retail sales decline and services PMI revised higher; German factory orders drop; G7 to set up conference call regarding European bank recapitalisation. Market turns to Bank of Canada decision and ISM non-manufacturing. Latest on last Mondays Intermarket Insights is below, including longs in USDCAD.

Despite the fact that UK banks remain closed in observation of Queen's diamond jubilee, the FX market has not been quiet as one could anticipate. USD is higher across the board except the JPY and major European equities are trading between -0.2% and 0.4%.

AUD had nasty whipsaws after the RBA lowered the cash rate to 3.5% from 3.75% noting weakening global growth and market sentiment deterioration. AUDUSD initially fell from 0.9755 to 0.9720 only to soar to 0.9790 just a moment later. The rate later rose to 0.9805 but throughout the London session fell back to 0.9730.

EURUSD was already trading lower when Eurozone retail sales were announced. They declined in April 1.0% from 0.3% m/m and dropped 2.5% from -0.2% y/y. Eurozone services PMI was revised slightly higher to 46.7 from the initial estimate 46.5 and the composite output rose to 46.0 from initial 45.9. Despite the revision, PMI remained near three year lows in May.

German factory orders dropped 1.9% in April from upwardly revised 3.2% in March which brought the annual figure to -3.8% from previous -0.2%. The reason why EURUSD rate has not responded to the disappointing figure is twofold: positive revision of the previous month and also unwillingness to open new positions ahead of the G7 conference call.

The US session starts at 8:30 am ET with Canadian building permits that are anticipated to drop 0.3% in April after rising sharply in March by 4.7%. The impact is likely to be limited as the BOC will announce its rate decision 30 minutes later. Most analysts expect rates to remain unchanged at 1%, but the statement will be key in whether the bank will reverse its hawkish outlook in the prior meeting.

ISM non-manufacturing is due at 10:00 am and it is expected to rise marginally in May to 53.6 from previous 53.5.

G7 conference call to discuss the escalation of the EZ crisis could bring preliminary ideas for next week's G20 meeting. The call was scheduled to start at 7:00 am ET.

USDCAD longs are part of Monday's Intermarket Insights as these remain in progress. Mondays Intermarket Insights titled "Euro Rebound or Consolidation?" include trading ideas on EURUSD, USDCAD, GBPUSD and gold. For direct access to today's Intermarket Insights, click here: http://ashraflaidi.com/products/sub01/access/?a=643 ; Non Subscribers can join here: http://ashraflaidi.com/products/sub01/