Dollar Extended Rally With Stocks And Yield, Eurozone GDP Watched

The dollar extended its recent rally, together with U.S. equities and treasury yields overnight, and stayed firm in the Asian session. The DOW and S&P 500 jumped to a new record high of 15215.25 and 1651.1 respectively. Asian equities followed, with the Nikkei breaking 15000 handle for the first time since 2008. A 10 year yield extended last week's rise to close at 1.952%, compared to May's low of 1.614%, while 30 year yield jumped to 3.163% compared to May's low of 2.810%. The Dollar index rose to as high as 83.68. In currency markets, the greenback strengthened against all other major currencies and has been strongest against the Aussie, Kiwi and Swiss Franc so far. While the EUR/USD dipped to 1.2912, the EUR was the second strongest currency this week, and is up against other major currencies except the greenback.

While we expect the dollar to maintain momentum, a number of important economic data from Europe could determine the relative strength of European majors, in particular the euro and Sterling. France and Italy are expected to stay in recession with -0.1% qoq and -0.4% qoq contraction respectively. German GDP is expected to grow 0.3% qoq though. Eurozone GDP is expected to stay in contraction: -0.1% qoq. The main focus will be on firstly, whether German GDP would disappoint and secondly, whether France GDP would beat expectation and turn positive.

The BoE inflation report and employment data is BoE governor King's last inflation report. There are expectations of some revision in forecasts, which could add to the case for BoE to maintain the asset purchase target of GBP 375b unchanged. The claimant count is expected to drop -3.0k in April, while unemployment rate is expected to be unchanged at 7.9% in March. Separately, Swiss will release PPI and ZEW.

U.S. data focus is on empire state manufacturing index and industrial production, while PPI and NAHB housing market index will also be released.