Mixed bag of Japanese data favours JPY

30 May, 2017

Our prop desk has closed out a long EUR/USD position from last week at a notable loss, but we are seeing some profits off those trades with long JPY exposure.

Markets in the UK and US return from the long weekend with some key economic releases on the table, including the US PCE deflator which could offer some meaningful clues over how the Fed will act next month when they make that next call on interest rates. Donald Trump is also back in Washington, putting renewed focus on the domestic agenda and specifically that FBI investigation which could result in some risk aversion in the near term.

The overnight release of Japanese household spending data may not have posted quite the improvement the market had been looking for with the month-on-month print coming in at 0.5% versus expectations of 1.1%, but at least it was a return to positive territory. Cheer was also found in the bigger than expected build in retail sales, again suggesting that inflationary pressures may be building in the country. Assuming this can be sustained and it’s not just an erroneous reading, the extended period of ultra-lax monetary policy for the country may be coming to an end.

Having hit two-month highs at the end of last week,ВВ EUR/GBPВВ is continuing to sell off although pat of this can be apportioned to profit taking off the back of a drift into overbought territory. TheВВ UK General ElectionВВ still looks like an outright win for the incumbent Conservative party, but the wide margin of victory that was first predicted continues to be eroded and there’s a real risk that this ballot will leave Theresa May in a materially weaker position than was the case six weeks ago. We also have little on the economic calendar from London in the hours ahead, but with those fears of Greek debt and the outcome of the French national assembly elections, the marking back is of no real surprise.

TheВВ Aussie dollarВВ floundered despite the release of some better than expected building approval data – at least on the monthly basis – with demand for the US dollar in the face of the falling Euro seen as skewing the equation here. As the European session has come on stream, there has been a degree of bargain hunting in play and given we have consumer credit readings due from Australia at 1.30am GMT tomorrow, there’s certainly just cause for not pushing the currency too low – this reading is a cause for concern at the RBA so anything too hot could lead to intervention.

EUR/USDВВ has given up the gains of the last two weeks but today provides some interesting metrics. At 12pm GMT we have German inflation data which is expected to show a degree of cooling – something that would be seen as welcome from a political perspective in terms of possibly aligning growth across Eurozone member states. This is followed at 12.30pm GMT with the US PCE deflator, said to be the Fed’s preferred measure of inflation. With next month’sВВ FOMCВВ meeting still having the potential to deliver a rate hike, any notable variance from expectations here could provide some clarity over how this call will go – and an consequent shift in the value of the dollar.

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