* US 1Q GDP disappoints, but inflation pressures rise
* EUR and GBP unable to extend gains, rally stalling
* Japan’s Golden Week holidays may trigger further JPY selling
* US April NFP jobs report on Friday

Another bad week for the US dollar, or was it a bad week for the Euro? The dollar remains under pressure, along with the JPY on the crosses, but European currencies are having difficulty extending their gains. And all this in a week where US data was mostly negative, culminating in the US advance 1Q GDP coming in below expectations at a 1.26% seasonally adjusted annual rate. If the market is unable to send the dollar lower after mostly deteriorating US data confirms the market’s negativity, what’s it going to take for the dollar to see further weakness? More likely than not, a shake out of short-US dollar/long Europe positions will be needed before the dollar can begin softening again.   Full text »

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* G7 - all sizzle no steak
* China GDP shocks the world
* Risky assets get the green light
* Dow Jones flexes its muscle

Not to beat a dead horse, but the G-7 meeting last weekend was the highlight that provided no highlights. In this new era of low volatility, put on as much risk as possible and then fund it as cheaply as possible, even a meeting of the top government financial experts provided nothing that the markets could sink their teeth into. And maybe in the final analysis, it is that very fact that provides the most insight. For if the G-7 had communicated that it would be intolerant of Euro strength above a certain level versus the yen, the market would fixate on that price and force the hand of the various central bankers. For those traders around during the 1980’s, it was the bank of England who rudely discovered that if you draw a line in the sand, one that you are prepared to defend, you (the central banker) are artificially defining a currency rate that does not meet fundamental analysis. Markets are both efficient and inefficient, but always prone to debate what a central bank should and should not do. Are the finance ministers learning from past mistakes? We will leave that supposition up to the faithful.   Full text »

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* G7 meeting set to unleash fireworks next week
* JPY is unlikely to be singled out by G7, opening door to more weakness
* EU Finance Ministers meet late next week

G-7 update: The official communique contained no surprises and did not single-out the JPY for any mention, as was largely expected. The language regarding the risks of carry trades was dropped and there was no other reference to the carry trade. The standard currency paragraph read as follows: “We reaffirm that exchange rates should reflect economic fundamentals. Excess volatility and disorderly movements in exchange rates are undesirable for economic growth. We continue to monitor exchange rates closely, and cooperate as appropriate. In emerging economies with large and growing current account surpluses, especially China, it is desirable that their effective exchange rates move so that necessary adjustments will occur.” The inclusion of language singling out China was new since the last statement in Essen, but not the first time it was used. The statement also stated that “Japan’s recovery is on track and expected to continue” and that this would be recognized by investors. Separately on Saturday, the IMF released a report indicating that China would ‘improve’ its exchange rate mechanism and that reducing its trade surplus was a ‘major objective.’ It seems unlikely that China will enact any major changes immediately, but it does hold out the prospect for further, and possibly faster, Yuan appreciation going forward.   Full text »

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