Mid-Day Report

Dollar Reverses after CPI and Retail Sales Disappointment, Set to End the Week Mixed

Typography

Dollar weakens broadly in early US session after disappointment from economic data. While the greenback is still trading at the strongest major currency for the week at the time of writing, it could end the week mixed. Headline CPI slowed to 2.2% yoy in April, down from 2.4% yoy, and missed expectation of 2.3% yoy. Core CPI slowed to 1.9% yoy, down from 2.0% yoy and missed expectation of 2.0% yoy. Headline retail sales rose 0.4%, below consensus of 0.6%. Ex-auto sales rose 0.2%, also below consensus of 0.5%. Elsewhere, Eurozone industrial production dropped -0.1% mom in March. German GDP rose 0.6% qoq in Q1. CPI was finalized at 2.0% yoy in April. Japan M2 rose 4.3% yoy in April, New Zealand business NZ manufacturing index dropped to 56.8 in April.

ECB Lane: Risks moving towards balance

ECB Governing Council member Philip Lane said that risks in the Eurozone economy are "still below balance but moving towards balance." And he emphasized the "need to see evidence that wage inflation is actually on its way to a level consistent with the target." And, the core is that how much of the "reasonably good data on output and unemployment" would "map into sustainable inflation". Regarding future monetary policy path, Lane said that "something has to happen in the rest of this year given there needs to be a plan in 2018."

BoJ official very cautious about an exit now

In Japan, BoJ Executive Director Masayoshi Amamiya said that there are "sufficient methods and tools" for stimulus exit. And, "it's possible to normalize monetary conditions while maintaining market stability". Board member Yutaka Harada urged the central bank to be "very careful" regarding stimulus exit. Hara said that "there might be a cost of delaying an exit. At the same time, there is a cost for an urgent exit". And emphasized that "we have to be very cautious about an exit now".

G7 FM to meet in Italy

G7 finance chiefs will start a two day meeting in Italy today. It's reported that Europe, Japan and Canada are seeking to get a clearer picture of US President Donald Trump's policies, through Treasury Secretary Steven Mnuchin. According to a Treasury spokesman, Mnuchin will brief G7 on the still evolving tax and regulatory reforms. However, trade and protectionism seem to be off the meeting's agenda. In addition, there will be a discussion of Greece's debt ahead of the May 22 meeting of Eurozone finance ministers,. with presence of representatives of ECB and IMF. IMF is believed to be pushing for debt relief measures for Greece which is objected by Eurozone governments for the time being.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 113.42; (P) 113.89; (R1) 114.33; More...

USD/JPY's retreat from 114.36 extends lower but it's staying above 112.08 support. Intraday bias remains neutral for more consolidation and outlook is unchanged. In case of deeper fall, downside should be contained by 112.08 support and bring another rally. Outlook remains unchanged that correction from 118.65 has completed with three waves down to 108.12. Above 114.36 will target 115.49 resistance first. Break will resume larger rally from 98.97 to 125.85 high.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. It's uncertain whether it's completed yet. But in case of another fall, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77 to bring rebound. Meanwhile, break of 115.49 resistance will extend the rise from 98.97 to retest 125.85. Overall, rise from 75.56 is still expected to resume later after the correction from 125.85 completes.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
22:30 NZD Business NZ Manufacturing Index Apr 56.8 57.8 58
23:50 JPY Japan Money Stock M2+CD Y/Y Apr 4.30% 4.30% 4.30% 4.20%
06:00 EUR German GDP Q/Q Q1 P 0.60% 0.60% 0.40%
06:00 EUR German CPI M/M Apr F 0.00% 0.00% 0.00%
06:00 EUR German CPI Y/Y Apr F 2.00% 2.00% 2.00%
09:00 EUR Eurozone Industrial Production M/M Mar -0.10% 0.30% -0.30%
12:30 USD CPI M/M Apr 0.20% 0.20% -0.30%
12:30 USD CPI Y/Y Apr 2.20% 2.30% 2.40%
12:30 USD CPI Core M/M Apr 0.10% 0.20% -0.10%
12:30 USD CPI Core Y/Y Apr 1.90% 2.00% 2.00%
12:30 USD Advance Retail Sales Apr 0.40% 0.60% -0.20%
12:30 USD Retail Sales Less Autos Apr 0.20% 0.50% 0.00%
14:00 USD U. of Michigan Confidence May P 97 97
14:00 USD Business Inventories Mar 0.10% 0.30%