Yen Seesaws As Inflation Remains Tame; Swiss Rally Blunted

While the EURUSD remained quiet for most of Asian and European sessions contained to a 20 point range

  • Japanese Yen: CPI slips but core remains steady
  • Euro: German Consumer sentiment improves
  • Pound: GDP bit higher on yearly basis led by consumer spending
  • Franc: KOF misses the 2.0 mark
  • Dollar: Existing Homes on tap

Yen Seesaws As Inflation Remains Tame; Swiss Rally Blunted
While the EURUSD remained quiet for most of Asian and European sessions contained to a 20 point range, the yen was the most volatile major of the night traveling nearly 70 points several times during Friday trade. The currency continues to be buffeted by carry trade and risk aversion flows as it first rallied when the Nikkei fell by -1.22% only to give up most of its gains as the Shanghai index managed to record yet another up day closing +0.69%. Trading in yen, which is usually quite subdued, was truly schizophrenic tonight as yen bulls managed to push the pair below the 121.00 figure only to be repelled by the bears who quickly rallied USDJPY back above 121.50.
Some of the action was caused by reports that North Korea managed to fire another missile into the sea of Japan, but with North Korean aggression now largely subdued by the Chinese, the geo-political risks in the Korean peninsula do not appear to be as grave as last year. Indeed this type of volatile price activity had less to do with newsflow is more likely to be emblematic of a top. However, calling a turn in pair has been a sucker bet over the past few weeks as Japanese fundamental data has failed to offer any support to the currency. Tonight was no exception as the best thing that could be said about the Japanese inflation data is that it did not decline on the core basis. Prices did fall at a slower pace signaling that deflation has bottomed out, but so far the indexes have offered scant evidence of rising prices. The report was especially surprising given the fact CGPI index earlier in the month recorded very strong gains of 0.6%.
Ultimately however, Japanese monetary policy is much more likely to be driven by the consumer spending data, rather than the CPI readings. BOJ officials recognize the necessity to raise rates in order to protect the yen from the incessant selling of the carry traders, but are constrained in doing so until Japanese wages and spending picks up. To that end next week labor market data and the Household spending reports may be crucial in providing clues for the timing of the next hike.
Finally, Switzerland’s most important economic report - the KOF index of leading economic indicators - printed in-line with expectations at 1.96, higher than the 1.90 reading the month prior, but failed to reach the physiologically key 2.00 mark. As such it failed to deliver the knock out punch for Swissie bulls who hoped that a 2.0 number would assure the market that the SNB will hike rates to by 50bp instead of 25bp at its upcoming meeting in June. In the aftermath of the report EURCHF remained flat as traders took the data in stride, but clearly blunted the franc rally that has been developing over the past few days.