Wal-Mart and Mr. Yen Caution on U.S.

Disappointing readings on first quarter growth and initial jobless claims washed out USD gains before the struggling currency could get any real traction Thursday. Warnings on U.S. growth and inflation from Wal-Mart and Japans former top currency official weighed on the USD. The Australian dollar remains within striking distance of record high ahead of data on private sector credit.

No strong theme took hold in North American trading. The dollar ended the day virtually flat against the euro and pound. The yen proved resilient despite a drop in industrial production and growth downgrade from the BOJ. Gold hit a record $1538 on the fallout from a dovish Fed. The best that can be said is that todays volatility generated some interesting technicals with cable forming a potential reversal.

U.S. economic data remains lackluster as GDP expanded at a 1.8% clip in Q1 compared to the 1.9% expected. Bernanke telegraphed a weak print in his press conference yesterday. As Bernanke hinted, some of the details of the report were strong, such as consumer spending. This points to a Q3 acceleration to around 3.5%. Perhaps more worrisome than the GDP reading was a jump to 429K from 404K in the weekly jobless claims data.

Outside of economic data, some headlines grabbed our attention, and may better explain the USD volatility and record high in gold. The first was from Wal-Mart where top executives said cost increases are starting to come through at a pretty rapid rate, that U.S. prices will start rising in June and that shoppers are running out of money due to gas prices.

Another interesting read was from Eisuke Sakakibara Mr. Yen, who warned that USD weakness will be a long-term trend. He also said debt uncertainty will begin to cut into US growth in 6-9 months and warned of stagflation. Sakakibara chooses his words carefully and is not prone to headline-grabbing proclamations.

ASIA PACIFIC PREVIEW

Flows will likely overshadow economic data in the final day of the week for Asia-Pacific traders. New Zealand trade balance will be released shortly at 1845 GMT and the consensus is for a surplus of NZ$204 million. A miss of at least $30-40 million would be needed to get kiwi traders attention. The NZD/USD chart formed a volatility-signaling doji star on Thursday but we may see continued consolidation inside of the 0.7970-0.8100 range.

By AB AshrafLaidi.com staff