Market Drivers for May 31, 2013
USD/JPY tumbles through 100.50 on drop in Nikkei futures
EUR/USD back below 1.3000 after Visco says ready to cut rates
Nikkei 1.37% Europe -1.07%
Oil $92/bbl
Gold $1410/oz.

Europe and Asia:
AUD Private Sector Credit 0.3% vs. 0.3%
JPY National CPI 0.1% vs. -0.2%
JPY Jobless Rate 4.1% vs. 4.1%
JPY Nomura/JMMA Manufacturing PMI
JPY Household Spending 1.5% vs.3.1%
JPY Industrial Production 1.7% vs. 0.8%
JPY Housing Starts 5.8% vs. 4.3%
CHF KOF Swiss Leading Indicator 1.10 vs. 1.08
EUR German Retail Sales -0.4% vs. 0.3%
EUR Euro-Zone Unemployment Rate 12.2^
GBP Mortgage Approvals 54K vs. 55K

North America:
USD Personal Income 8:30
USD Personal Spending 8:30
USD U. of Michigan Confidence 9:55
CAD GDP 9:30

A relatively quiet session for the EUR/USD turned into a turbulent tumble after Bank of Italy Governor Iganzio Visco suggested that the ECB may be ready to cut rates again in order to stimulate the economy in moribund Europe. Mr. Visco, who is also a member of the European Central Bank’s Governing Council, said that lower sovereign bond yields have failed to translate into gains for the real economy and stated that the ECB “stands ready to intervene again” if new information suggests action is necessary.

His comments had an immediate impact on the EURUSD with the pair falling to a low of 1.2975 before finding some support. The euro has been remarkably robust over the past several days rising through the key 1.3000 level primarily on some profit taking in dollars longs, but today’s rhetoric by Mr. Visco suggests that the pair may find further gains much hard to come by.

Mr. Visco’s comments on monetary policy suggest that ECB officials remain deeply concerned about the state of economic activity in Europe and are actively looking for way to stimulate demand. Todays weak Retail Sales data out of Germany which printed at -0.4% versus 0.3% eyed is just the latest data point to suggest that growth is sluggish. The problems are most acute in the EZ periphery economies with Italian monthly unemployment rate rising to 12.0% from 11.6% expected.

There is no doubt that Italian officials are feeling tremendous political pressure and today’s comments by Mr. Visco – very unusual for an ECB official given the central bank’s official policy of never pre-committing on rates – may be an attempt to prod the ECB council to assume a more accommodative stance.

Meanwhile in Asia, the volatility in the Nikkei futures continued to roil the USD/JPY pair which dropped through 100.50 level in early European dealing. The latest data out of Japan suggests that Abenomics is starting to work with improvements in inflation and Industrial Production measures, but currency traders are now focused in the price action in JGB and equity markets which remain highly volatile.

USD/JPY continues to correct its rally and today’s US economic reports could determine if the pair tests the key 100.00 level support. The North American calendar is relatively bare with only the U of M data and Chicago PMI on the docket. While U of M is simply a revision and unlikely to have much of an impact on trade, the Chicago PMI release could affect the market especially if it surprises to the downside raising concerns about the US recovery in the manufacturing sector. Last month the report printed at 49.0 below the 50 boom/bust line and it remains there for the second month in a row the pressure on USD/JPY could accelerate sending the pair towards 100.00 as the day proceeds.

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