Japan Economy Ends 28-Year Growth Streak, EU Inflation Cools

The Japanese economy ended the longest winning streak in 28 years. Data from the Cabinet office showed that the GDP contracted by negative 0.2% in the last quarter. This was against the 0.1% gain in the fourth quarter and the 0.0% analysts were expecting. On an annualized basis, the economy contracted by negative 0.6%, which was lower than the expected contraction of negative 0.2%. The slowdown in the Japanese economy was attributed to the low private consumption and low capital expenditure.

The euro continued falling against the dollar after the inflation data showed signs of weakness. In Germany, the consumer prices remained the same as last month which was in line with analysts’ estimates. In the EU countries however, the rate of inflation fell from 1.0% to 0.3% in April. On an annualized basis, consumer prices rose by 1.2%, which was in line with expectations. At this time last year, prices rose by 1.5%. In addition to the inflation data, the decline of the euro and the rise in Italian bonds were attributed to the two populist parties in Italy planning to write off more than 250 million of debt and exit from the euro.

In the United States, the 10-year treasury bonds rose to above 3.08%, which is the highest level since 2012. The rise in yields yesterday led to a sell-off in stocks, a surge in the dollar, and a decline in gold. Another reason for the sell-off yesterday was the announcement from North Korea that it would reconsider meeting with the US president to discuss denuclearization.

In addition, in April, the US issued more than 1.35 million building permits, which was higher than the expected 1.34 million but lower than the 1.37 issued in March. The building permits contracted by negative 1.8%, which was better than the expected -2.3%.

XAU/USD

Gold continued to decline, reaching a low of $1286. This is the lowest level since December last year. The decline was mostly caused by the stronger dollar. At the current price, the commodity has breached the important support level of $1300 and is trading below the 100 and 200-day moving average. A strengthening dollar could see gold test the important $1370 support level.

EUR/USD

The Euro continued to slide against the dollar reaching a low of 1.1780, which is the lowest level since December last year. The pair is trading below the short and long-term moving averages. On the other hand, the bears power is at the lowest level since February, while the bulls power is rising. Using the four-hour chart, the RSI is at 28. This implies that the pair could move slightly higher as bulls take over.

USD/JPY

The USD/JPY pair was little moved today. This is because of the divergence of economic data and geopolitical issues. While the Japanese GDP numbers disappointed, the news from North Korea provided support to the yen. The pair is now trading in line with the 30-day moving average and slightly lower than the 50-day moving average. As the pair continues to move in a sideways direction, traders should wait for a trend to start before initiating positions.