USD Lower As Turnaround Tuesday Unfolds

Sterling's seven day losing streak appears to be ending today with the help of a stronger than expected construction PMI. The Nikkei's 12-day rally streak ended today with a minor loss, helped by profit-taking in the financials and energy space. More domestic sectors, like utilities, healthcare and consumer stables still rallied. News that regular pay rose 0.9% year-over-year in April, three times more than the market expected and the biggest increase since 2005 is a welcome development. Rising wages has been a missing component to Abenomics. With inflation near zero, the increase in wages translates into the first increase in real wages in two years.

More broadly, the US is posting modest losses against all the major currencies. It does though retain a firmer bias against many of the freely traded emerging market currencies, including the Turkish lira, ahead of this weekend's election and the South African rand.

After slipping briefly below $1.09 yesterday, the euro has been helped back toward $1.10 by some creeping optimism over Greece (though not reflected in Greek stocks or bonds today) and positive news from the ECB. The positive news has taken on two forms. First, the ECB's survey found SME access to funding has improved. It is the first time since 2009 that there has been an improvement in the availability of loans. There has also been a decline in rates and an increase in the size and maturities of loans.

Second, the preliminary estimate for May inflation was reported as stronger than expected. The headline rose to 0.3% from zero in April. This is the highest level since last November. It is not only energy, as the core rate jumped to 0.9% from 0.6%. The consensus called for a gain to 0.7%. The core rate is at its highest level since last August.

In the UK, the construction PMI rose to 55.9 from 54.2. The consensus expected a rise to 55.0. Separately, the UK reported a much larger than expected increase in mortgage approvals. They stood at 68.1k in April, after an upwardly revised 61.9k in March (initially 61.3k). In its seven-day losing streak, sterling fell from almost $1.5700 to below $1.5200. However, sentiment remains poor, and there still seems to be a bias of selling into upticks. Resistance is seen in the $1.5260-80 area.

The Australian dollar is the strongest of the majors today, gaining almost 0.9% on the back of a somewhat less dovish Reserve Bank. Rates were left on hold as was widely expected, and while it was recognized that policy needs to be accommodative, there was nothing to suggest that a rate cut will be forthcoming any time soon.

Separately, the current account deficit was largely in line with expectations, and the fact that net exports were stronger than expected at 0.5% of GDP rather than flat, aided sentiment ahead of the Q1 GDP due early tomorrow. The Australian economy is expected to have grown 0.7% in Q1 after a 0.5% expansion in Q4 14. The Aussie traded up from $0.7600 late yesterday to briefly poke through $0.7700 in the Asia-Pacific session. It has come off in the European morning to test yesterday's highs above $0.7660.

Turning to the North American session, today's reading on factory orders is unlikely to be as supportive as yesterday manufacturing ISM and construction spending report. However, the report adds only marginally to the durable goods orders that have already been released. That said, US auto sales are expected to be robust. The consensus call for a 17.15 mln unit pace would be the strongest since last August's peak of 17.45 mln. It would also see the 12-month moving average rise to a new cyclical high (from 16.69 mln in April). This would also bode well for headline May retail sales. The big number of the week is still the monthly jobs report, and the consensus is for an increase of 228k. Such a report, after a 223k increase in April, would underscore that March's gain of only 85k was a bit of a fluke.

The Canadian dollar which is the worst performing of the major currencies today, losing fractionally against the dollar (and by extension on the crosses) also reports the monthly jobs data at the end of the week. The unexpected contraction in Q1 GDP reported last week ( -0.6%) continues to weigh on sentiment. The consensus calls for a 10k increase in Canadian employment, but this masks an expected fall in full-time employment after the outsized gain of nearly 47k full-time jobs in April.