JPY Stronger On Short Covering, USD Broadly Sold – Action Forex

Market Brief

The Asian markets started the week through a light trading session as Japan and China were closed overnight. The FX markets saw USDJPY retreat further as Japanese investors kept on repatriating to buy domestic assets. The BoJ pushing the 2% inflation target date by one year triggered demand in JPY. EURJPY dropped to 127.06; USDJPY fell to 97.35 before recovering over 97.50. The liquidity remained limited.

As early reaction to week-end news out of Italy, EURUSD rallied to 1.3068 yet the upside was quickly capped. The Italy finally forming a government was good news for Euro, yet was already priced in Friday. Now, the focus is clearly shifting to ECB meeting on May 2nd. As the markets expect an upcoming rate cut this Thursday, EURUSD gets support from the broad USD weakening. The bids are seen above 1.3000, while the offers remain ahead 1.3100.

USD lost against all of its major peers since Friday as the US growth missed the market expectations in the first quarter. US economy grew 2.5% in Q1 versus 3% forecasted. The personal consumption increased 3.2% and the inflation advanced to 1.2%. Fed’s Hinsenrath stated that he is worried about the inflation being far below the target. The news out of US gave boost to high beta currencies as the probability of tapering the quantitative easing in US further weakened.

In Australia, AUDUSD rallied from 1.0273 to 1.0329 on USD unwind, while AUDJPY sold-off to 100.318. A break below 100.00 may put the carry trades in danger. Sterling traded a leg up overnight; GBPUSD hit 1.5535 – its highest level since February 15th. EURGBP retreated to 0.8405 on the ongoing speculations of an ECB rate cut on Thursday.

The week ahead will see FOMC rate decision on May 1st and ECB policy verdict on May 2nd. Today, the economic calendar consists of German April CPI m/m and y/y, Spanish April(P) Retail sales and CPI y/y, Italian April Business Confidence, Euro-Zone April Industrial, Services and Consumer Confidence, US Mar Personal Income and Spending, US March PCE Core m/m and y/y, US March Pending Home Sales m/m & y/y and US Dallas Fed April Manufacturing Activity Index.