Singapore's Prime Minister Lee Hsien Loong summarized the mood by noting that, “The economic recovery is not yet on a firm footing, much of the rebound has been driven by fiscal stimulus measures and the effect will wear off in the coming months. Countries are watching the situation carefully and will only gradually unwind their stimulus measures, hopefully in a coordinated way so that you do not have disorderly change in the situation."
Meanwhile in Japan, the GDP data showed a much better than expected rise to 4.8% annual rate from 2.9% forecast. The increase was driven by surprising rise in domestic consumption Consumer spending, which makes up about 60 percent of the economy, climbed 0.7 percent, fueled by government incentives to purchase energy-efficient cars and appliances.
USD/JPY traded below the 89.50 level in response to the better than expected eco data and could test the 89.00 figure later in the day as North American markets absorb the news. With pressure on the Chinese to revalue the yuan in the face of persistent dollar weakness, the yen becomes the biggest beneficiary in G-10 of such a policy move. If Chinese authorities provide any indication that they are willing to loosen the current trading band and allow they yuan to appreciate albeit at a very gradual pace, the yen could firm even further targeting the 85.00 level into the close of the year.
In North America today the key event risk is the US Retail Sales number expected to print at 0.4% versus 0.5% the month prior. We anticipate the number could beat expectations which could help risk FX push higher and could put the EUR/USD above the 1.5000 handle once again. On the other hand if the data misses once, USD/JPY could easily break the 89.00 figure to the downside as it gets the double push from risk aversion flows and the outperformance of economic data overnight.
May The Force Be With You.
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