Dollar Gives Up the Gains, Major Japanese Data

The US dollar has given back nearly three weeks of gains in the past two sessions. Softer data weighed on the USD on Thursday while with Swiss franc led the market. All eyes will be on Japan in the day ahead with a major slate of economic data. CAD awaits tomorrow's March GDP figures, which will help determined the fate of our latest USDCAD longs. We have reintroduced USDCHF to the Premium Insights after a long absence, issuing 2 new longs and 2 charts supporting the fundamental rationale. Both GBPUSD shorts were stopped out, while the stop on EURUSD was raised. Full details are seen in the latest Premium Insights

A downward revisions to GDP and a softer jobless claims figure knocked the dollar to a three-week low against the yen and euro in US trading. First quarter US GDP was lowered to 2.4% from 2.5% in the first revision, it was expected to remain unchanged. Initial jobless claims were at 354K compared to 340K.

After months of steady improvement, the trend in claims has flattened. Job creation at the current pace will fall short of the consistent +200K/month the Fed wants to see before tapering QE. If the data continues to show a stagnating recovery, the dollar will stagnate as well.

The euro rose above 1.3050 after several attempts at 1.3000 were rebuffed in the past two weeks. USD/JPY also touched the lowest since early May but it was unable to hold the declines and closed nearly unchanged.

So far, the dollar slump could simply be a month-end correction in a longer-term rally but it bears close watching with several pairs – and gold – launching small breakouts.

The trend in the dollar turned as the Nikkei broke down and after a 5% fall on Thursday, that market remains a major focus. Japanese data takes the spotlight in the hours ahead as April CPI, household spending and employment numbers are released.

CPI is always a major number in Japan but April was the dawn of aggressive BOJ action. Expectations are for a 0.4% y/y decline in the core number. Household spending is expected up 3.1% y/y and the unemployment rate is forecast to remain steady at 4.1%. All the numbers will be released at 2330 GMT.

Shortly afterward, at 2350 GMT, April industrial production is expected to fall 3.4%.

It's difficult to judge the Kuroda actions from April data because he didn't act until April 4. Better indications could come from May data, including the Markit manufacturing PMI, which was at 51.1 in April. It will be released at 2313 GMT.