The US dollar has remained resilient in recent sessions, backed by less damaging domestic data while numbers elsewhere, particularly from Europe, head south. The Eurozone outlook is harmed further by tightening credit bank standards, which may magnify the impact of rising fuel prices as consumers are squeezed. This may weaken the link between the euro and fuel prices in our view. Conversely, we do not see the stronger dollar hurting the US recovery from a shallow and short recession. Admittedly, US macroeconomic data may continue to show weakness but this is neither a new trend nor consistently negative. The Fed is likely to be very close to ending its easing cycle, in our view. In contrast, we expect the ECB and RBNZ are nearing the start of their easing cycles given weakening growth. On Friday, we recommended selling EURUSD at 1.5455, targeting 1.5050, with a stop-loss at 1.5712. For the more medium term, we think the shifting relative monetary policy stance between Europe and the US will further support the dollar and we maintain our 3-month target for EURUSD at 1.47. We are also short NZDCAD, targeting 0.7400, based on the view that NZ growth is falling sharply while high oil prices and stable economic conditions in Canada should support CAD.

This week is likely to feature more mixed US data, particularly consumer-related numbers. April retail sales are likely to remain soft (UBSe: -0.3%, cons: -0.2%, after a 0.2% gain in March), although we expect ex-auto sales to have picked up slightly (cons and UBSe: 0.2%, after 0.1% in March). The IBD/TIPP (cons: 38.0, after 39.2) and Michigan consumer confidence indices (UBSe: 61.0, cons: 62.5, after 62.6 in April), and the NFIB small business optimism index are all not likely to show much vigor. We expect the housing market index to be flat (UBSe and cons: 20), consistent with home sales stabilizing soon. Importantly, we expect headline April CPI to rise 0.2% m/m (cons: 0.3% after 0.3% in March), with core prices likely to remain tame (UBSe and cons: 0.2%). There are also a number of Fed speakers of note this week, with Chairman Bernanke speaking on Tuesday and Thursday. There is room for a Q&A session in the latter appearance. There is no US data due for release today.

Worrying signs are emerging in the Eurozone. The ECB bank lending survey released Friday showed net credit standards tightened further in Q1. Separately, French industry output fell more than expected in March, shrinking 0.8% m/m versus consensus of -0.4%, with declines in all sectors except energy. We think the ECB will achieve their medium-term price stability goals soon and the ECB is still on track to cut rates later this year in response to slowing growth. We expect data in the coming weeks to confirm a trend of deteriorating growth and further easing in domestic demand and credit growth should exert downside pressure on inflation levels. Eurozone's advanced Q1 GDP figures to be released on Thursday, is expected to show a drop in the annual growth rate to 1.8% from 2.2%. Our economists expect Germany's provisional Q1 GDP at 1.6% y/y after 1.8% y/y in Q4. At present EURUSD has broken through our 1-month target of 1.55 but is still well off our 3-month target of 1.47. We suspect that there are still many asset managers with entrenched long EURUSD positions are at risk of being unwound as EURUSD breaks key levels to the downside.

Norway April CPI released Friday came in above market's expectations accelerating 2.4% y/y from 2.1% y/y in March. Consensus was for 2.3% y/y in the underlying measure. At its latest policy meeting Norges Bank raised its depo rate 25bp to 5.50% and signalled rates may rise further in Q3 should price pressures persist. Norges Bank has been one of the few central banks in G10 space who remained on a tightening path despite the outburst of the credit crunch. So far Norway has not been substantially impacted by the crisis, however evidence of tighter credit conditions in the lending market and moderating domestic activity suggest that the central bank may be overly optimistic. Friday's release does represent risk Norges Bank may consider a further hike, however our economists argue the next move in Norway will be down, in 2009. Weaker global growth, in particular in the Eurozone and other Norwegian trading partners, will inevitably hurt Norway's economy in the months ahead, so that rates remain on hold. We continue to target EURNOK at 7.80 over 1 month and 7.95 over 3 months.