USDJPY extended its gains above 102 after low Japan GDP reading

EUR/USD

The pair started the session off in negative territory alongside the move lower in USTs (ahead of upcoming supply) which saw the USD out-muscle most major currencies. In terms of Eurozone data, today’s Eurozone industrial production added further fuel to the fire for the worrying picture surrounding the area’s economy, however the release failed to provide the pair with any sustained reaction. Nonetheless, the pair was provided some relief alongside the weaker GBP (following the BoE’s QIR) as EUR/GBP was seen sharply higher. The main source of price action for the pair in the second half of the session stemmed from the US retail sales which came in flat despite expectations for a 0.2% rise. This subsequently saw EUR/USD reverse all earlier losses as the pair surged higher towards the 1.3400 handle. Thereafter, the pair traded in a relatively rangebound manner with attention now turning towards tomorrow’s host of Eurozone GDP readings. Particular focus will be placed on the German reading with expectations of a 0.1% contraction, which would mark the lowest level of growth for the German economy since December 2011.

GBP/USD

All eyes today for GBP/USD were firmly placed on today’s Quarterly Inflation Report from the BoE where the central bank was expected to justify easy monetary policy by pointing to slow wage growth and lacklustre productivity. Ahead of the QIR was the monthly jobs report from the UK which saw the avg. earnings ex-bonus hit a record low, which subsequently led GBP to pare initial strength, seeing EUR/GBP move off its 21DMA, with GBP/USD slipping below the 1.6800 level to print session lows. In terms of the report, the BoE slashed their wage growth expectations to 1.25% from 2.50%, highlighting the persistent weakness in the UK labour market that prevents the BoE from tightening policy. This subsequently saw GBP/USD spike lower towards the 1.6700 level to trade at 10-week lows as the report lessened imminent expectations for a rate hike by the BoE. Looking ahead for the pair, tomorrow sees an absence of tier 1 data or notable speakers from the UK, although participants will continue to speculate over the timeline for a rate hike by the BoE.

USD/JPY

The main focus for the pair today was on today’s Japanese GDP reading, expectations were for the reading to show a sharp contraction of 7%, wiping out all gains made earlier this year due to the recent April 3% sales tax hike, which prompted a last-minute purchase rush before the rise took effect and hence exaggerated growth in the quarter to the end of March. The reading came in at -6.8% marking the biggest drop since 2011 while consumer spending declined the most on record (-5.2% vs. Exp. -3.7%). However, Econ. Min Amari downplayed the reading saying that the release did not change the government’s view on the economy. This subsequently saw weakness in the JPY as USD/JPY extended its gains above the 102.00 level with the move further exacerbated by favourable interest differential flows alongside the move lower in the UST’s ahead of today’s 30yr US auction. However, this move was largely pared in the latter half of the session following a disappointing US retail sales release which saw a reversal in interest differential flows as the US 10yr approachedthe 126.00 level to leave USD/JPY in relatively unchanged territory.