Japan GDP Raises Doubts On More QE As Euro GDP And CPI In Focus

Market Brief

Japanese GDP growth is suspected to have improved to 1.5% q-o-q , bringing Japan to 5.9% annualized growth in 1Q preliminary reading, GDP should have stepped to 0.0% in Q1 from -0.3% a quarter ago. In addition, the private consumption preliminary estimate improved by 2.1% q-o-q, Capex advanced 4.9% and domestic demand expanded 1.7% in Q1 preliminary report. Japan EconMon Amari highlighted the progress out of deflation adding that the weakness post-sales tax hike is expected to remain temporary. USD/JPY and JPY crosses traded mixed in Tokyo. Lower probability for additional BoJ stimulus partially offset good economic data. USD/JPY remained capped below 102.00. Trend and momentum indicators remain flat. USD/JPY is stuck within 101.50/103.00 area, breakout in either way is needed for clear direction. EUR/JPY broke the daily Ichimoku cloud base on the downside (140.01). EUR-negative sentiment is likely to keep the bias downwards, option barriers are seen pre-140.00. The key support is seen at 200-dma (137.90).

Euro-zone will publish 1Q preliminary GDP and April final CPI figures today. EUR/USD holds the ground mostly due to inflows into EUR-denominated bonds. 10-year Italian and Spanish yields are still below 3.0%. The first GDP releases came from France and Germany. French growth showed slowdown from 0.3% to 0.0% q-o-q (vs. +0.1% exp.), while German seasonally adjusted GDP growth advanced from 0.4% to 0.8% q-o-q (vs. 0.7% exp.). EUR/USD opened the European session by a bearish attempt to 1.3707. Data is key; any negative surprise should send EUR/USD below April lows (1.3673) suggesting strengthening in bearish momentum. The key support stands at 200-dma (1.3626).

The BoE published the QIR yesterday. As expected, the BoE Governor Carney remained on his dovish position mentioning the contraction in the spare capacity and need for low bank rates until Q1/Q2 2015. GBP/USD aggressively sold-off to 1.6754 and consolidated losses below 1.6780 (Fibonacci 61.8% on Mar-May rally) in Asia. Trend momentum gains downside traction. We see support at 1.6723 (50-dma), 1.6647 (Fibo 38.2%), then 1.6627 (100-dma). Light option bids trail above 1.6780. EUR/GBP rallied to 0.81831 post-QIR unwind. Now it’s EUR’s turn to speak. Option bids are building to counter previous barriers at 0.81900/0.82000. A close above 0.82000 suggests deeper upside correction.

Today’s key event is Euro-Zone 1Q (Prelim) GDP q/q and y/y and April (Final) CPI m/m and y/y; the ECB publishes its Monthly Report. In European session, traders also focus on French, Italian and German 1Q (Prelim) GDP q/q and y/y, Swiss April Producer and Import Price Index m/m and y/y, Swedish 1Q Industry Capacity, Norwegian April Trade Balance. In North America, the calendar consists of Canadian March Manufacturing Sales and April Existing Home Sales m/m, US April CPI m/m and y/y, US May 10th Initial Jobless Claims and May 3rd Continuing Claims, US March Net Long-Term TIC Flows and Total Net TIC Flows, US April Industrial Production, Capacity Utilization and Manufacturing (SIC) Production.