Euro Firm After Italian PM Letta Wins First Confidence Vote

Euro stays firm against dollar after Italy's new prime minister Letta won his first confidence vote. The new government is being backed by Letta's own center-left Democratic Party, Berlusconi's center-right People of Freedom as well as former prime minister Monti. Letta said that Italy will "die of fiscal consolidation alone, growth policies cannot wait any longer." He pledged to move quickly on measures to stimulate growth, create jobs and ease some austerity measures. Letta is expected to win a second vote on Tuesday in the Senate. The EUR/USD breached the 1.31 handle overnight but lacks follow through buying to push it to 1.3128 minor resistance so far. While the EUR/GBP recovered, it stayed well below 0.85 near term resistance. Strength in the common currency is so far limited ahead of ECB meeting later this week.

There have been increasing expectations for the ECB to cut rates from the current historical low of 0.75% to 0.50%. Today's data might show inflation sliding further to 1.6% yoy in April, staying well below ECB's 2% target. The unemployment rate would probably climb to another record high at 12.1%. Recent PMIs posted risk of extending recessions, and Germany willslide into recession. There should be room for ECB to cut rates further. Meanwhile there are also talks that ECB would wait until it release new projections on growth and inflation in June. The ECB could be considering other ways of solving credit squeeze instead of going fully-fledged quantitative easing. We'd stay cautiously bearish in euro, particularly in crosses.

In the U.S., the S&P 500 closed at a record high yesterday boosted by growth oriented stocks, but the dollar stayed soft in general. The Fed will kick off its two-day meeting today, and is widely expected to keep policies unchanged. Focus is on whether recent weaker than expected data would prompt the FOMC to have a more cautious tone in the statement. But the overall impact could be muted. The more important events should be the ISM indices and non-farm payroll to be released later this week.

As for today, New Zealand building permits dropped -9.1% mom in March, worse than the expectation of 2.0%. UK Gfk consumer sentiment dripped to -27 in April. In Japan, household spending rose 5.2% yoy in March, unemployment rate dropped to 4.1%, industrial production rose 0.2% mom and retail sales dropped -0.3%. Looking ahead, German retail sales, Gfk consumer sentiment, Eurozone CPI, unemployment, UK mortgage approvals and M4 will be released in European session. Canada's GDP will be a focus point in the U.S. session, and is expected to shod 0.2% mom rise while IPPI and RMPI will also be released. In the U.S., main focus will be on consumer confidence which is expected to rise to 60.3 in April. The employment cost index, S&P/CS house price and Chicago PMI are due for release.