USD/JPY - 125.00?

Market Drivers May 28, 2015

UK GDP misses sending cable back towards 1.5300
EUR/USD -Greece and EU continue to negotiate
Nikkei 0.39% Europe -0.39%
Oil $57/bbl
Gold $1190/oz.

Europe and Asia:
AUD Capex -4.4% vs. -2.3%
GBP UK GDP 0.3% vs. 0.4%

North America:
CAD Current Account 8:30
USD Weekly Jobless 08:30
USD Pending Homes Sales 10:00

It's been a relatively quiet night of consolidation in the currency market with most pairs staying with 50 point ranges, but cable slipped to test support at the 1.5300 level in the wake of weaker than expected UK GDP revision that dampened any expectations of BoE policy move.

UK 2nd revision of GDP came in at 0.3% versus 0.4% eyed as imports rose more than anticipated and private consumption was lower at 0.5% versus 0.7% projected. The headline data showed relatively muted conditions for underlying growth with 2.4% versus 2.5% year on year growth.

However the underlying numbers may be better than anticipated with Gross Fixed capital formation rising 1.5% versus 0.9% and Business Investment also better at 1.7% versus 1.6% forecast. Still the market turned sour on the data pushing cable to another retest of the 1.5300 figure in the past 24 hours.

The UK GDP figures certainly show no overheating in the UK economy which is likely to keep the BOE on the sidelines until 2016. Furthermore the markets are starting to become concerned about the prospect of Brexit as PM Cameron must appease the right wing of his party and arrange for a referendum on whether UK should pull out of the European Union. Brexit would be an unmitigated disaster for UK and few market participants believe that the plan would pass, but it nevertheless has unnerved the market and only added to trader skittishness in absence of other news.

Elsewhere Aussie was also noticeably weaker in the wake of much worse than anticipated Private Capital Expenditure figures which came in at -4.4% versus -2.3% eyed indicating that the mining sector remains in a deep funk and is likely to be a drag to Australian economic growth for the foreseeable future. Aussie slipped to 7650 in late morning London trade as traders feared that the RBA may need to cut rates once again to maintain growth.

In North America today the markets will get a glimpse of the weekly jobless numbers and the Pending Homes data. With USD/JPY perched above the 124.00 handle any positive surprise could nudge the pair towards the 124.50 level as the rally remains very much in tact. If the labor data shows that US job market continues to be buoyant, positive sentiment could propel USD/JPY through the key 125.00 level even before the market sees next week's NFP data.