If anyone were in any doubt about whether US monetary policy would remain loose after next months roll-off of QE2, yesterday’s US economic data would have dispelled them.

Despite US weekly jobless coming in much better than expected at 409k, subsequent economic data proved to be rather disappointing.

The Philadelphia Fed business index for May came in at 3.9, the lowest level since October 2010 and well below expectations of 20, while given recent poor housing data, it wasn’t too much of a surprise when US existing home sales for April also disappointed declining 0.8% against an expectation of a 2% rise.

The pound had a slightly better day yesterday receiving an unexpected boost as April retail sales data came in well above economist expectations of a rise of 0.8%, jumping 1.1% on the back of a Royal Wedding and warm weather boost as the proliferation of bank holidays probably brought forward consumer spending for the summer.

The single currency still seems unaffected by concerns about sovereign debt and has managed to retain its firm tone. With German April PPIset to remain on the high side today expectations of further tightening measures still seem to have greater weight with respect to sentiment than the splits emerging between the ECB and EU politicians about the likelihood of a Greek restructuring.

The ECB’s threat to pull funding for Greek banks in the event of any type of restructuring is an indication of the fears the bank has of a contagion effect being set off throughout the European banking system.

Last nights Bank of Japan rate meeting kept interest rates at their historically low levels but rather surprisingly, given yesterday’s poor economic numbers, didn’t add to the stimulus measures already implemented in response to the March earthquake.

 

EURUSD– last nights close above the 55 day MA has shifted the balance towards the upside in the single currency ever so slightly.

The last barrier to a move higher is trend line neckline resistance of an inverse head and shoulders that comes in at 1.4360, which could still cap. One word of cuation is that the US dollar index has not closed below its 55 day MA which would confirm add greater weight to further US dollar weakness.

However, a break above 1.4360 could well target further gains towards 1.4600.

Trend line support from the recent lows at 1.4045 comes in around the 1.4230 level and this level needs to break to retarget the 1.4000 area and 200 week MA.

 

GBPUSD– the pound had a better day yesterday, but lacked the necessary momentum to get back near the 55 day MA at 1.6300, and while yesterday’s strength was welcome until such time as we are able to overcome this key barrier a move lower seems the most likely outcome. A move above 1.6300 targets 1.6380.

The next support level remains around the 1.6060 level, which is trend line support from the lows last May at 1.4230.

 

EURGBP– the significant congestion resistance area mentioned yesterday between 0.8850/70 has so far managed to cap the single currencies gains.

As suspected the euro did slip back towards the 0.8780 area rebounding from 0.8791. This area needs to break to provoke a move back lower.

This week’s unexpected break higher certainly requires a strategy reassessment and while above 0.8780 further gains look likely having overcome the 55 day MA, which means a re-test of the 0.8930 area in the longer term.

 

USDJPY– a sharp move higher to 82.21 yesterday saw the yen break higher and hit the first target of the 55 day MA at 82.01.

The failure to close above it does make the dollar susceptible to a move back towards 81.20/30.

The longer term objective remains for a higher dollar but the inability of US bond yields to rally could well make this a rather tedious task.

A close above the 55 day MA at 82.05 is needed to target a move targeting the 200 day MA at 82.80.

Longer term support remains around the 80.50 area which is trend line support from the all-time lows at 76.25.

A move below 79.80 could well target further losses towards 78.80