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Yen Hits 18-Month High, US Dollar Seeks Lifeline in PCE Data

Yen Hits 18-Month High, US Dollar Seeks Lifeline in PCE Data

2016-04-29 08:11:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points:

  • Japanese Yen continues to push higher, hits 18-month high vs. US Dollar
  • Eurozone GDP data a non-event for the Euro but may boost risk appetite
  • Upbeat US PCE reading may rekindle June FOMC rate hike speculation

The Japanese Yen continued to strengthen in overnight trade, rising to the highest level in 18 months. The move played out alongside a decline in S&P 500 futures, pointing to risk-off sentiment as the driver behind price action. The Australian Dollar tracked gains in the S&P/ASX 200 stock index, which diverged from an otherwise downbeat mood across major Asian bourses. Energy and raw materials shares led the way higher, following a recovery in crude oil prices.

The greenback declined against all of its major counterparts in a move that may reflect ebbing Fed rate hike bets following yesterday’s disappointing first-quarter GDP print. The world’s largest economy grew at an annualized pace of 0.5 percent in the three months through March, falling short of expectations calling for a 0.7 percent increase. The priced-in probability of a June rate hike has dropped to 12 percent, down from 21 percent yesterday.

Eurozone CPI and GDP figures headline the economic calendar in European trading hours. The headline inflation rate is expected print at -0.1 percent year-on-year in April, unchanged from the prior month. Output growth is expected to rise 0.4 percent in the first quarter, marking the largest increase since the three months to June 2015.

News-flow out of the common currency area has increasingly improved relative to consensus forecasts over the past two months, opening the door for upside surprises. While such results are unlikely to be materially supportive for the Euro considering the ECB’s steadfast commitment to aggressive monetary stimulus, they may boost confidence in global growth dynamics and encourage an improvement in risk appetite. That could prove supportive for the sentiment-sensitive commodity-bloc FX and cap Yen gains.

Later in the day, the spotlight turns to US PCE figures. The Fed’s favored inflation gauge is expected to show the core price growth rate edged down to 1.6 percent in March after hitting a three-year high at 1.7 percent in the prior month. Measures of cost pressure have increasingly improved relative to expectations since mid-2015, hinting that analysts’ models may be understating reality and opening the door for an upside surprise. Such a possibility is reinforced by the quarterly PCE gauge released within yesterday’s GDP report, which unexpectedly surpassed the FOMC’s long-run objective to register at 2.1 percent.

An upbeat result may go a long way toward pushing back on dovish policy bets among investors. Indeed, the Fed’s mandate explicitly targets employment and inflation, not overall growth. Having secured healthy progress on the jobs front, Janet Yellen and company have struggled to deliver a recovery in price growth. Signs of a meaningful turnaround on this front may reignite June tightening bets, driving a broad-based recovery in the US Dollar.

FXCM traders are net buyers of the US Dollar. What does this mean for the trend? Find out here!

Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

22:45

NZD

Building Permits (MoM) (MAR)

-9.8%

-

10.3%

23:01

GBP

Lloyds Business Barometer (APR)

38

-

43

23:05

GBP

GfK Consumer Confidence (APR)

-3

-1

0

1:00

NZD

ANZ Activity Outlook (APR)

32.1

-

29.4

1:00

NZD

ANZ Business Confidence (APR)

6.2

-

3.2

1:30

AUD

PPI (QoQ) (1Q)

-0.2%

-

0.3%

1:30

AUD

PPI (YoY) (1Q)

1.2%

-

1.9%

1:30

AUD

Private Sector Credit (MoM) (MAR)

0.4%

0.5%

0.6%

1:30

AUD

Private Sector Credit (YoY) (MAR)

6.4%

6.6%

6.6%

2:55

AUD

RBA's Debelle Gives Speech

-

-

-

3:00

NZD

Money Supply M3 (YoY) (MAR)

7.8%

-

7.3%

European Session

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

5:30

EUR

France GDP (QoQ) (1Q A)

0.5% (A)

0.3%

Medium

5:30

EUR

France GDP (YoY) (1Q A)

1.3% (A)

1.4%

Medium

6:00

EUR

Germany Retail Sales (MoM) (MAR)

-1.1% (A)

-0.3%

Medium

6:00

EUR

Germany Retail Sales (YoY) (MAR)

0.7% (A)

5.5%

Medium

6:45

EUR

France PPI (MoM) (MAR)

0.3% (A)

-0.5%

Low

6:45

EUR

France PPI (YoY) (MAR)

-4.0% (A)

-4.2%

Low

6:45

EUR

France CPI EU Harmonized (MoM) (APR P)

0.1% (A)

0.8%

Low

6:45

EUR

France CPI EU Harmonized (YoY) (APR P)

-0.1% (A)

-0.1%

Low

6:45

EUR

France CPI (MoM) (APR P)

0.1% (A)

0.7%

Low

6:45

EUR

France CPI (YoY) (APR P)

-0.2% (A)

-0.1%

Low

6:45

EUR

France Consumer Spending (MoM) (MAR)

0.2% (A)

0.5%

Low

6:45

EUR

France Consumer Spending (YoY) (MAR)

2.7% (A)

1.6%

Low

7:00

CHF

KOF Leading Indicator (APR)

102.7 (A)

102.8

Low

7:30

GBP

BOE's Gracie Speaks in Brussels

-

-

Medium

8:00

CHF

SNB's Jordan Speaks in Bern

-

-

Medium

8:00

EUR

Italy Unemployment Rate (MAR P)

11.6%

11.7%

Low

8:30

GBP

Net Consumer Credit (MAR)

1.3b

1.3b

Low

8:30

GBP

Net Lending Sec. on Dwellings (MAR)

3.7b

3.6b

Low

8:30

GBP

Mortgage Approvals (MAR)

74.2k

73.9k

Medium

8:30

GBP

M4 Money Supply (MoM) (MAR)

-

0.9%

Low

8:30

GBP

M4 Money Supply (YoY) (MAR)

-

2.0%

Low

8:30

GBP

M4 Ex IOFCs 3M Annualised (MAR)

6.0%

5.0%

Low

9:00

EUR

Eurozone Unemployment Rate (MAR)

10.3%

10.3%

Medium

9:00

EUR

Eurozone CPI Estimate (YoY) (APR)

-0.1%

-

High

9:00

EUR

Eurozone CPI Core (YoY) (APR A)

0.9%

1.0%

High

9:00

EUR

Eurozone GDP SA (QoQ) (1Q A)

0.4%

0.3%

High

9:00

EUR

Eurozone GDP SA (YoY) (1Q A)

1.4%

1.6%

High

9:00

EUR

ECB's Weidmann Speaks in Munich

-

-

Medium

9:00

EUR

Italy CPI NIC incl. tobacco (MoM) (APR P)

0.2%

0.2%

Low

9:00

EUR

Italy CPI NIC incl. tobacco (YoY) (APR P)

-0.2%

-0.2%

Low

9:00

EUR

Italy CPI EU Harmonized (MoM) (APR P)

0.5%

2.1%

Low

9:00

EUR

Italy CPI EU Harmonized (YoY) (APR P)

-0.1%

-0.2%

Low

10:00

EUR

Italy PPI (MoM) (MAR)

-

-0.5%

Low

10:00

EUR

Italy PPI (YoY) (MAR)

-

-4.1%

Low

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EUR/USD

1.1195

1.1267

1.1309

1.1339

1.1381

1.1411

1.1483

GBP/USD

1.4387

1.4486

1.4548

1.4585

1.4647

1.4684

1.4783

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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