Evening Report-May 20.

The Indian rupee trimmed its early fall and rose as a large corporate and exporters sold dollars however further sharp gains were capped due to the drop in domestic shares.U.S. Dollar continued to lose ground to most of the majors except the Yen as risk appetite rose through European trading. A better than expected Japanese GDP reading spurred hope of a global recovery despite it showing the steepest contraction on record of 4%. A light fundamental calendar will leave dollar price action at the mercy of the broader themes as only MBA mortgage applications are due for release. Indeed the most significant event risk from the U.S. session will come in the form of Canadian CPI which is expected to fall to 0.6% from 1.2% in March. Also U.S. Treasury Secretary Timothy Geithner will testify at the Senate TARP hearings today and his remarks could spark volatility.The Euro also saw bullish sentiment surge at the beginning of the European session after falling to as low as 1.3584 despite bearish fundamental data. April German producer prices fell 2.7% which was the fastest pace in almost 22 years led by a 6.0% drop in electricity costs. The sharp fall oil prices are working their way through the economy as we saw a similar impact when their rose last year. Therefore, we could start to see inflation stabilize over the next few months which is why we have seen the ECB consistently dismiss deflation concerns. Meanwhile, industrial new orders in Italy fell for an eighth straight month as foreign demand fell by 33%, showing that weakness remains in the broader demand. We may see resistance today at yesterday’s high of 1.3671 which could be a sign that a retrace is possible. Pound bullish sentiment was bolstered by the BoE minutes which showed the central bank was unanimous in keeping rates on hold at 0.50% and expanding their quantitative easing efforts. The central bank felt that the risk of too little stimulus was greater that too much but saw "no pressing need" for a lager expansion of the purchase program than the £50 billion that was agreed upon. Meanwhile the CBI industrial trends reading saw a slight improvement to -56 from -57, but export orders fell to -446 from -34. BoE minutes confirmed what markets had already known from the quarterly inflation report which was that there was a high probability of CPI undershooting their 2% target. However, the minutes showed that the MPC was on "alert "for inflation resurging which paints a different picture than their forecast of prices remaining below 2% until 2012 in the quarterly report. Japanese Yen fell and was supported at 95.45 levels after finding resistance at 96.25 levels as Japan's economy shrink 4.0%, worse than the negatively revised 3.8% contraction that the Asian country saw in the final period of the previous year.Japan's economy in the first quarter contracted more than it did in the final three months of 2008, but still managed to perform stronger than economists had expected.