Alberta Vote adds to Busy Calendar

The US dollar ignored a better ISM report and focused on soft trade data but the real story may have been the renewed drop in bonds. The Australian dollar as the top performer and the US dollar lagged. NZD is the bigger loser in Asia after higher than expected Q1 unemployment rate. The highlights on the economic calendar are New Zealand jobs, Australian retail sales and the China services PMI but don't underestimate today's Canadian provincial election. We issued a new Premium trade in EURUSD, while last week's AUDNZD long is over 100-pips in the green. GBPAUD and AUDUSD are currently in the red as is NZDUSD.

The temptation is to blame another slide in the US dollar on Tuesday on the worst trade report in 6 years but the market tends to look forward and not back. The way the FX market was able to overlook good ISM non-manufacturing numbers suggests something else was going on.

Once again we point to the bond market. The rout in Bunds two weeks ago kicked off a squeeze on euro shorts and US dollar longs. That trade appears to be ongoing as Bund yields rose another 6 basis points to 0.51%. The pain was much more dramatic in the periphery as Greek leaders abandoned the pretense of a May 11 deal.

It's concerning that the US dollar was unable to rally on ISM but it's early in an important week of economic data.

The focus shifts to Australia at 0130 GMT for retail sales, which are expected up 0.4% in March. The RBA probably had an advance look at the report so even a soft reading is unlikely to have a lasting effect. The China services PMI from HSBC is due 15 minutes later but it's generally not a significant market mover.

One event that isn't registering on the calendars of many traders is the Canadian election in the oil-rich province of Alberta. The left-wing NDP holds a 20-point lead heading into the polls to threaten the 43-year dynasty of the Progressive Conservative party. The likely winners have promised higher corporate taxes and oil royalties. That may drive investment away from the oil sands and it weighed on CAD Tuesday.