Japanese core inflation slows down, USD loses ground

Summary:

• Japanese core price growth loses steam in May even as headline picks up
• US dollar trades lower on the day giving back its this week gains
• Eurozone ministers agree to a debt relief deal for Greece as part of the current bailout programme

Equity markets have been little changed on the day except the Japanese NIKKEI (JAP225) being down 0.8% as of 6:21 am BST. Notice that Wall Street saw fairly heavy losses on Thursday being dragged down by tech stocks, and as a result the NASDAQ (US100) ended 0.9% lower, the Dow Jones (US30) sank 0.8% while the SP500 (US500) slid 0.6%. In terms of macroeconomic releases we were offered the May inflation report from the Japan’s economy which on balance turned out to be slightly disappointing. Admittedly, headline inflation accelerated to 0.7% from 0.6%, core inflation stripping out fresh food stayed put at 0.7% while the gauge excluding both fresh food and energy prices even dropped to 0.3% from 0.4% implying no inflationary pressures ahead and justifying the current outstandingly dovish stance of the BoJ (it held monetary policy settings a week ago).

Japanese inflation is going nowhere solidifying the stubbornly dovish BoJ attitude. Source: Macrobond, XTB Research

While the Japanese yen rarely responds to its domestic economic data, this time a clearly weakish core inflation indicator might stand behind the JPY relative underperformance. The currency is trading flat in the morning European trading even as other major currencies are on the rise against the greenback. Recall, the US currency got a blow from yesterday’s sub-par manufacturing data from Philadelphia. Obviously, it could have been just one-off decline, albeit a more possible scenario seems to suggest the whole manufacturing sector could hiccup partly on the back of tariffs being largely positive in the short-run, but decisively adverse in the longer-term horizon.

Take a look that the US dollar index (USDIDX) has yet to be able to move through a 95 handle, and instead of such a move, it is actually painting an ominous candlestick at the weekly time frame. Furthermore, a similar pattern occurred already three weeks ago strengthening the case for a possible reversal from the current levels. Source: xStation5

Beside the inflation data from Japan it’s worth paying attention to Greece which secured a debt relief package agreed in the early hours of Friday by Eurozone finance ministers. They also decided to provide Greece with a new disbursement of 15 billion EUR as part of the ongoing 86 billion EUR bailout programme. The deal reached today involves a 10-year extension of maturities on loans from the European Financial Stability Facility (EFSF) as well as a 10-year postponement on interest payments. The new the International Monetary Fund welcomed the news regarding Greece suggesting it will improve Greek debt sustainability, however it refrained from hailing the overall economic outlook there. At the end of 2017 the Greek debt to GDP ratio stood at 178.6%.

Is Friday going to be the day of reckoning for the EURUSD? Looking at the weekly chart one may spot the price has been so far able to stay far above a zone placed nearby 1.1450. If buyers take control on the market anew, it would bring relief to the single currency ending the most recent US dollar rally. Source: xStation5