daily brief

Talking Points

·          AUD Consumer confidence rebounds

·          JPY CGPI compresses onmonth over month basis

·          UK unemployment reports within expectation

·          Trade Balance on tap for US

Though remaining at a 25 year high, Japan’s Corporate Goods Prices Index was weaker than expected at 3.3% versus 3.4% consensus suggesting that inflationary pressures were well easing in  world’s second largest economy.  The news drove USD/JPY to 114.80 as it fueled fears that any near term interest rate moves by the Bank of Japan will be modest and limited at best  offering little structural support for longer term yen bullish positions. Until such time that the Fed unequivocally signals the end of its tightening campaign putting an end to the widening of the interest rate differential between the two currencies, the yen will remain the preferred funding method for a variety of carry trades and the currency will suffer as result.

In Euro-zone, another night of quiet action  with the EUR/USD trading in a very narrow 30 point band for most of the Asian and European session. EZ data came in line with GDP registering 0.6% quarter over quarter growth with household consumption improving from 0.1% the period prior to 0.6%.  That result however was marginally lower than expectations of 0.7% and continues to suggest that consumer spending in the 12 member region is expanding though the pace of growth is hardly torrid. In short there was little in tonight’s data to disprove the conventional view that EZ interest rate will rise only by 25bp until September and the lackluster price action reflected that fact.

In the US session attention will turn to the key economic event of the week as US trade deficit data will be released at 12:30 GMT. The consensus view is for a -$64 Billion gap. Given the fact that oil prices in May receded slightly while the greenback weakened the market estimate may indeed be correct. However, if the data prints anywhere near -$70 Billion the small dollar rally over the past 12 hours could easily come to a sudden end.

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