Market Drivers May 30, 2017
Risk reverses in Europe
EZ data slightly softer
Nikkei -0.02% Dax -0.12%
Oil $49/bbl
Gold $1263/oz.

Europe and Asia:
AUD Building Permits 4.4% vs. 3.0%
JPY Household Spending -0.7% vs. -1.4%

North America:
USD PCE 8:30
USD PI/PS 8:30
CAD Current Account 8:30

Currency trading was back in full force on the second day of the week as all the major dealing centers were back from the holiday. Risk aversion flows dominated early Asian trade with EURUSD slipping to 1.1110 level while cable broke below the 1,2800 figure. News that North Korea tested another missile landed only 300 miles off the shore of Japan, rattled the markets. However by start of European trade both euro and cable recovered and were trading at session highs.

The economic data out of Europe was decidedly second tier, with just a smattering of EZ confidence figures which came in slightly below forecast. In US today however, the data could have real impact as currency traders focus on the PCE release due at 12:30 GMT. The PCE deflator is the Fed’s favorite measure of inflation and it slipped the month prior suggesting that inflation pressures remain subdued.

This month the market is looking for a print of 0.1%, yet if the data prints negative once again it will cast doubt on the need to hike rates in June. Inflationary forces – which has been the main argument for Fed’s tightening – remain far more muted than the labor data would suggest as wage growth continues to increase at a glacial pace.

Today’s Personal Income and Personal spending numbers will also provide some interesting insight into the strength of the US consumer. Strong numbers could set up a rally in USDJPY that could take the pair all the way to 112.00 as the week proceeds on assumption that US growth is starting to pick up. However, if the data today proves a disappointment USDJPY could start a drift towards the 110.00 mark as rate hike expectations are pared back.