Market Drivers for April 17 2014

Tankan up big in March despite sales tax pressure

German PPI continues to deflate

Nikkei 0.0% Europe -.22%

Oil $103/bbl

Gold $1298/oz.

Europe and Asia:

JPY Tankan 25 vs. 18

AUD NAB Business confidence 6 vs. 8

EUR GE PPI -0.3% vs 0.0%

North America:

USD Jobless claims 8:30 AM

CAD Core CPI 8:30 AM

USD Philly Fed 10:00 AM

It been a very quiet night of trade in the currency market with dollar slightly weaker as traders squared up positions ahead of the long Easter holiday weekend. The euro rose to 1.3850 despite further evidence of deflating prices in Germany.

German PPI printed at -0.3% versus forecasts of 0.0% marking the third month in a row that wholesale prices were either flat or negative. German PPI is now at -0.9% on a year over year basis indicating that deflationary pressures remain in the system. The market however completely ignored the data and euro managed to pop above the 1.3850 barrier taking out some stops.

For now the market is convinced that the ECB will do nothing in response to the deflationary pressures as it continues to rely on organic growth in the region to pull the EZ economy out of the deflation trap. To that end next weeks EZ flash PMI data will be key to shaping the near term policy response from Frankfurt. If the PMIs show some improvement, the ECB will have been vindicated in its hands off stance, However if the data continues to falter the pressure on Mr, Draghi and company to become more accomodative will increase markedly.

Elsewhere, the dollar was a bit lower against the yen with USD/JPY dropping below the 102.00 figure before rebounding above that level. The dip was caused by small selloff in the Nikkei in the wake of some missed earnings expectations from Google and IBM. On the economic front however, the data was surprisingly robust with Tankan rising to 25 from 18 forecast despite the onset of the sales tax.

BOJ Governor Kuroda told a meeting of Japanese officials that the central bank will continue to support the markets via monetary easing indicating that Japanese officials are committed to the QE course. However, there is no expectation that Japanese policy makers will increase the scope of the program much beyond what has already been announced and that has left USD/JPY in a stall as the pair looks to the US data for any additional prospect for rally.

In North America today the focus is on jobless claims and Philly Fed data. The market is looking for a slight bump in jobless claims but a bit of an improvement in Philly Fed data. Generally, these are second tier events and are unlikely to have any lasting impact on trade.

With holiday fast approaching the markets may remain lackluster for the rest of the day although some further squeeze of long dollar trades is possible into the weekend. Cable has been able to make fresh yearly highs in Asia, but has pushed higher that 1.6840 and traders in North America may want to test the stops above the 1.6850 level as the day progresses.

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