The US dollar is enjoying firmer tone as the week winds down.  It is up against all the major currencies but the Norwegian krone today. This trims the loss for the week. In fact, the roughly 0.7% decline of the New Zealand dollar today, making it the weakest of the majors, is enough to turn it lower on the week. Fonterra lowered its 12-month projections of dairy supply, especially whole milk powder.  

The news stream is light, and main impetus appears to be emanating from the German bund market. Yesterday the 10-year yield tested the 77 bp peak from last week, and it held.  This has spurred some buying. The yield is off about five bp to 0.65%. This is still 10 bp higher form a week ago and 20 bp from the end of April. Recall at the end of last week, bunds also appeared to have stabilized. Next week's data may offer some fundamental support in the form of weaker surveys (IFO, ZEW and flash PMI).  

The gains in bunds have helped lift European bonds more broadly. European equities are also firmer; trimming this week's losses in the major markets. The Dow Jones Stoxx 600 is up about 0.6%, which is sufficient to offset this week's losses. The gains are being led by health care and financials. The only industrial sector that is down today is energy.  

The UK construction bounced back in March, gaining 3.9%, the most since January 2014. Although the consensus had looked for a 4% rise, the upward revisions in the past two months offset the disappointment. It may be consistent with a small upward revision to the Q1 GDP estimate of 0.3%.  

Sterling briefly poked through $1.58 yesterday but has not been able to sustain the push. It is finding support near $1.5730, and below here the $1.5700 may offer support. The 200-day moving average is near $1.5610 now. A break of this would likely signal the end of the post-election rally. 

The dollar had slipped below JPY119 yesterday. Good import demand for dollars was reported from Tokyo. This lifted the dollar back to JPY119.70. The dollar finished last week near JPY119.75.   

The euro has pulled back a full cent from yesterday's $1.1445 high, near where a large option barrier is thought to have been struck. The $1.1340 area corresponds to a potential head and shoulder formation on the hourly bar charts. A convincing break could signal another cent decline toward $1.1240, which also corresponds with the short-term uptrend line is drawn off April 23 and this week's lows. There has been market talk of leveraged accounts interest in 1 and three month euro calls struck near $1.18 and $1.20 respectively.  

We are hesitant to become too negative on the US economy. Although we hear more talk of recession, it seems over-the-top. It is hard to conceive of a recession when unemployment is falling, and weekly initial jobless claims are making cyclical lows. It is true that retail sales were a significant disappointment this week, but in fairness, the economic data is considerably more mixed than many observers seem to recognize.

A key component of capex was revised up to little notice yesterday. Durable goods orders excluding defense and aircraft were initially reported at -0.8%. It was revised to 0.6%. And the February series was also revised higher.  

Today the May Empire State Manufacturing survey will be reported.  April's -1.2 reading was the weakest since December.  New orders showed the biggest decline since January 2013. Employment deteriorated while inventories increased. A stronger report is expected for May. Separately, April industrial production is expected to be flat after a 0.6% decline in March. Industrial output has fallen in three of the past four months. This is partly a function of the energy sector and utilities. Manufacturing itself snapped a three-month steak of no gains with a 0.1% rise in March. A 0.2% gain is expected in April.  

University of Michigan's preliminary May consumer confidence will also be reported. Sentiment remained at elevated levels in April and is expected to have stabilized in May. The inflation expectations may draw some interested after softening in April. The Fed has recently put more emphasis on the survey results than the market-based measures of inflation expectations.