Yen pushes higher despite Japanese holiday
Weak US risk appetite and GDP estimate drag on USD
Eurozone Q1 GDP and April CPI due at 0900 GMT

Despite a holiday in Japan today, the USDJPY move managed to extend to new lows for the cycle below 107.50, driven in part by the momentum of yesterday’s enormous move on the back of the Bank of Japan's surprise inaction (and the even more surprising delay of forecast 2% inflation target attainment). Weak risk appetite in the US was perhaps another driver, as well as a weaker than expected US GDP estimate for Q1.

Do note the higher than expected inflation reading for the PCE price index used in the GDP calculation was above 2.0% annualised and at the highest level since early 2012. Elsewhere, commodity currencies remained resilient, though had a hard time making progress higher against the G3 broadly on weak risk appetite.

Today we look forward to the Eurozone GDP estimate for Q1 and the CPI estimate for April after yesterday’s very low CPI reading from Spain and weak, but in-line reading from Germany. The ECB’s Peter Praet was out in an interview with a Spanish newspaper saying that further cuts into negative territory are possible if the inflation outlook worsens significantly, and yet EURUSD finds itself bumping up against the 1.1400 level again – a level it as not closed above on a weekly basis save for one brief move in May of last year.

Chart: EURUSD
The 1.1400 level has actually proved the key resistance on a daily/weekly close basis, though the zone extends to 1.1500 for intraday action going back through all of 2015, as we watch whether the USD weakness here is sufficient to take EURUSD beyond this pivot area for the huge gap between 1.15-1.20 that was so quickly transited during the late 2014 slide.

We also have the key US PCE inflation indicator from March on tap today, as this is the measure that the Fed tracks most closely for its measure of inflationary pressures. The trend is steeply higher and yet Fed forecasts are looking for the PCE to stop rising and go sideways from here. This data and next week’s survey and employment data out of the US should see the USD direction more firmly established by the end of next week.

The G10 rundown

USD – this week’s Federal Open Market Committee is doing the dollar no favours as EURUSD and GBPUSD are pushing on key resistance and now USDJPY has broken lower. And the strong commodity trade may also be reflexively related to the idea that the Fed will let things run “too hot” without responding appropriately. Let’s see if today’s or next week’s data can halt the slide.

EUR – the market is driving the euro higher, likely on the idea that the European Central Bank is at the end of its policy road, despite Praet’s rhetoric overnight and as the Fed seems entirely willing to let things run their course with no policy response for now. Given low implied volatility, the situation is beginning to smell of complacency, but let’s see if EURUSD can punch through the 1.14-1.1500 zone.

JPY – heads stronger still on the idea that the BoJ lacks urgency here. But a strong JPY sits somewhat awkwardly with strong commodity prices/currencies here, as one or the other might have to falter soon. We’re not far now from really major USDJPY support in the 105.00/50 area, with 106.50-ish a key Fibo retracement.

GBP – sterling is likely to underperform the euro as long as the latter is firm and broadly if risk appetite deteriorates broadly. GBPUSD looks like it is begging to take out stops above 1.4670, but would expect a rally to die eventually ahead of the 200-day moving average fast descending from around 1.4875 presently. The chief driver here is likely positioning.

AUD – a bit unloved at the moment on the recent weak CPI and fears that the Reserve Bank of Australia responds with a dovish downgrade next Tuesday, but if commodities don’t show firmer signs of cooling, the AUD could snap back higher. AUDUSD looks heavy as long as we remain below 0.7700 on daily closes.

CAD – Oil marching higher and higher and recent Canada data has mostly surprised to the upside – but the move higher in CAD has outstripped interest rate spreads, so a faltering of any of these supports could see a quick and large correction.

NZD – still elevated after the less dovish guidance from the Reserve Bank of New Zealand this week – but let’s see if 0.7000 in NZDUSD can be retaken with conviction.

SEK - weaker risk appetite not helping the SEK’s cause here, but EURSEK remains heavy within the lower range as the key 9.12 trigger area awaits should the pair head lower, and possibly opening for a test of 9.00.

NOK – conflicting developments in oil (higher) and risk appetite (lower) have EURNOK hamstrung in a tight range – today’s moves in these markets plus Norway unemployment data this morning to drive the action after the EURNOK downtrend has gone a bit stale.