Market Drivers for May 29, 2013
Dollar extends rally in Asia – Aussie hits fresh lows
German unemployment worse but euro shrugs off data
Nikkei 0.10 % Europe -0.89%
Oil $94.37
Gold $1385/oz.

Europe and Asia:
AUD Westpac Leading Index 0.2% vs. 0.6%
JPY Retail Trade 0.7% vs. 0.0%
JPY Large Retailers’ Sales
JPY BOJ Governor Kuroda Speaks at BOJ Conference
CHF UBS Consumption Indicator 1.46 vs. 1.24
EUR German Unemployment Change 21K vs. 5K
EUR German Unemployment Rate 6.9%
EUR German CPI
EUR EC OECD May Economic Outlook

North America:
CAD Bank of Canada Rate Decision 10:00

It been a very quiet night of trade in Europe characterized by some profit taking against the dollar after the greenback rally in Asian trade. The dollar set fresh yearly highs against the Aussie in early Asian dealing with AUD/USD dropping to a low of 9527 before finally finding some support ahead of the 9500 figure.

The Aussie continues to get pounded as the market is convinced that the RBA will be forced to cut rates yet again, but we are sceptical that central bank will act any time soon unless the economic situation begins to deteriorate markedly. The latest data out of Australia did show some weakening with the Westpac LEI dropping to 0.2% from 0.6% the month prior but the decline was not precipitous and the data is generally not heavily followed by the market.

Instead currency traders in Asia will be focused on tomorrow’s Australian report on Private Capital expenditure. The bears central thesis rests on the assumption that investment flows in Australia will begin to contract significantly reversing the multi-year boom. If tomorrow’s PCE data does miss its mark Aussie could tumble through the key 9500 figure, but if the data proves better than expected the pair could finally see short covering rally especially given the fact that the 9500 level should represent an attractive bargain entry to some longer term real money investment accounts.

Meanwhile in Europe the action was very subdued with EUR/USD and GBP/USD both carving out narrow ranges in generally listless trade. German unemployment printed worse than expected at 21K versus 5K eyed. This was the fourth straight monthly gain in joblessness suggesting that recession in Europe is starting to take its toll on German labor markets. However the data may have been exaggerated by unseasonably cold weather and large amount of public holidays in May. Nevertheless the data is clearly pointing to a slowdown as German economy has stopped producing new jobs, although the overall unemployment rate remains at 6.9%.

The EUR/USD shrugged off the news and rallied in the aftermath of the release rising to 1.2895. The rally was less driven by any fundamental factors and more a function of some profit taking in dollar. After its gains yesterday the greenback was due for a pullback as longs booked some short term gains.

The dollar correction may become especially evident in USD/JPY which failed to hold the 102.50 level yesterday and now finds itself at 101.75 this morning. The pair appears to be locked in a tight range of 102.50 to 101.00 as reputed option barriers and oscillating yields in JGBs and USTs have kept the moves contained. With no economic data on the US calendar the price action in the pair may once again be driven by the fixed income markets. US yields are a bit off their highs and if they correct further USD/JPY may follow to test support near the 101.50 level. For now however the currency markets remain in consolidatve standoff.

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