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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

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

22:45NZDBuilding Permits (MoM) (MAR)-9.8%-10.3%
23:01GBPLloyds Business Barometer (APR)38-43
23:05GBPGfK Consumer Confidence (APR)-3-1
1:00NZDANZ Activity Outlook (APR)32.1-29.4
1:00NZDANZ Business Confidence (APR)6.2-3.2
1:30AUDPPI (QoQ) (1Q)-0.2%-0.3%
1:30AUDPPI (YoY) (1Q)1.2%-1.9%
1:30AUDPrivate Sector Credit (MoM) (MAR)0.4%0.5%0.6%
1:30AUDPrivate Sector Credit (YoY) (MAR)6.4%6.6%6.6%
2:55AUDRBA's Debelle Gives Speech ---
3:00NZDMoney Supply M3 (YoY) (MAR)7.8%-7.3%

European Session

5:30EURFrance GDP (QoQ) (1Q A)0.5% (A)0.3%Medium
5:30EURFrance GDP (YoY) (1Q A)1.3% (A)1.4%Medium
6:00EURGermany Retail Sales (MoM) (MAR)-1.1% (A)-0.3%Medium
6:00EURGermany Retail Sales (YoY) (MAR)0.7% (A)5.5%Medium
6:45EURFrance PPI (MoM) (MAR)0.3% (A)-0.5%Low
6:45EURFrance PPI (YoY) (MAR)-4.0% (A)-4.2%Low
6:45EURFrance CPI EU Harmonized (MoM) (APR P)0.1% (A)0.8%Low
6:45EURFrance CPI EU Harmonized (YoY) (APR P)-0.1% (A)-0.1%Low
6:45EURFrance CPI (MoM) (APR P)0.1% (A)0.7%Low
6:45EURFrance CPI (YoY) (APR P)-0.2% (A)-0.1%Low
6:45EURFrance Consumer Spending (MoM) (MAR)0.2% (A)0.5%Low
6:45EURFrance Consumer Spending (YoY) (MAR)2.7% (A)1.6%Low
7:00CHFKOF Leading Indicator (APR)102.7 (A)102.8Low
7:30GBPBOE's Gracie Speaks in Brussels --Medium
8:00CHFSNB's Jordan Speaks in Bern --Medium
8:00EURItaly Unemployment Rate (MAR P)11.6%11.7%Low
8:30GBPNet Consumer Credit (MAR)1.3b1.3bLow
8:30GBPNet Lending Sec. on Dwellings (MAR)3.7b3.6bLow
8:30GBPMortgage Approvals (MAR)74.2k73.9kMedium
8:30GBPM4 Money Supply (MoM) (MAR)-0.9%Low
8:30GBPM4 Money Supply (YoY) (MAR)-2.0%Low
8:30GBPM4 Ex IOFCs 3M Annualised (MAR)6.0%5.0%Low
9:00EUREurozone Unemployment Rate (MAR)10.3%10.3%Medium
9:00EUREurozone CPI Estimate (YoY) (APR)-0.1%-High
9:00EUREurozone CPI Core (YoY) (APR A)0.9%1.0%High
9:00EUREurozone GDP SA (QoQ) (1Q A)0.4%0.3%High
9:00EUREurozone GDP SA (YoY) (1Q A)1.4%1.6%High
9:00EURECB's Weidmann Speaks in Munich --Medium
9:00EURItaly CPI NIC incl. tobacco (MoM) (APR P)0.2%0.2%Low
9:00EURItaly CPI NIC incl. tobacco (YoY) (APR P)-0.2%-0.2%Low
9:00EURItaly CPI EU Harmonized (MoM) (APR P)0.5%2.1%Low
9:00EURItaly CPI EU Harmonized (YoY) (APR P)-0.1%-0.2%Low
10:00EURItaly PPI (MoM) (MAR)--0.5%Low
10:00EURItaly PPI (YoY) (MAR)--4.1%Low

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3

--- Written by Ilya Spivak, Currency Strategist for

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