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Safe haven assets inch higher, US data in focus
JPY stronger as investors switch to risk-off mode
The Japanese yen gained momentum on the last trading day of the week as it rose 0.85% and 0.63% against the pound and the Aussie respectively. USD/JPY fell as much as 0.53%, down to 111.25, as investors switched to risk-off mode ahead of the weekend. Gold inched higher and rose $5.5 to 1,262.30 during the Asian session, while the Swiss franc rose 0.15% against the greenback.
During the early morning session, the Ministry of Internal Affairs published the inflation figures for the month of April. There was no big surprise. Inflation accelerated in the last month with the headline measure rising 0.4% y/y, matching forecast, up from 0.2% a month earlier. The BoJ favourite measure of core inflation climbed to a 2-year high of 0.3% y/y versus 0.2% in March and 0.4% median forecast. The measure that excludes fresh food and energy costs printed at 0.0%, highlighting the fact that the pickup in inflation was mostly driven by higher food and energy prices. With crude oil prices back in the doldrums, it is very unlikely that we will see further momentum in headline inflation. We still wonder how the BoJ will reach its 2% target before April. They will have to delay further as upside pressures in the core measure are inexistent.
USD/JPY is currently breaking the 111.25 support level (Fibonacci 50% on April’s rally). If broken, the closest support can be found at 110.51 (Fibo 61.8%). On the upside, a resistance lies at around 112.
United States: Markets expect data to be on the soft side
Markets will look towards the US today as a set of data is expected to be released with Q1 GDP likely showing decent growth. Markets estimate a GDP increase of 0.9%. But when looking deeper at the fundamentals, the economic recovery may not be as strong as it seems.
April's durable goods orders are also expected to take a hit at -1.5% from March when data had been revised higher at 1.7% m/m. Inventories have also declined in April and the trade deficit has widened. Exports of goods declined in April while imports grew. First quarter personal consumption data is also going to be released today and should show a continued increase but far from the Q4 level when it increased by 3.5%. EUR/USD is still trending higher and has broken 1.1200. Equity markets are still on the rise, the S&P 500 is trading at all-time highs. The bullish breakout needs to show some follow-through though. Despite the economic uncertainty, we believe there is now room for dollar strengthening.
In our view, investors’ sentiment is more correlated to the equity markets (and central banks underpinning stocks with free money) than the real economic fundamentals which are showing softness in the recovery.