• US data suggests that the manufacturing industry continues to suffer from the effects of weak global demand and that this is not set to improve just yet
• EUR/USD may keep on trading in a side-range between 1.1129 and 1.1315 before the Fed’s next steps can be clarified
• Japan’s CPI for April contracts for a second straight month. We would not be surprised if the BoJ announces another delay in its inflation target timing
• We clearly believe that the sales tax hike Japan has planned to take place in 2017 will be postponed or taken off the table completely as the BoJ tries to avoid any unnecessary turmoil
• Rating agencies are starting to wonder whether Japan should be downgraded as future economic expectations are completely uncertain
• We maintain our upside bias on USD/JPY
• In spite of a weaker crude oil, commodity currencies remained roughly unchanged, with the exception of the Canadian dollar, which fell against the greenback

The latest batch of economic data from the US indicated that the manufacturing sector is not out of the woods just yet. In spite of solid headline figures – US durable goods orders jumped 3.4%m/m in April, beating median forecast of 0.5%, while previous month’s reading was revised from 0.8% to 1.9% – the details do not look great. Indeed, the sharp rise in durable goods orders is mostly due to a strong demand for transportation equipment, especially non-defense aircraft, motor vehicles and transportation. The ex-aircraft gauge rose 0.4%m/m versus 0.3% expected. However, orders for capital goods, excluding aircraft – a proxy for spending business plans – contracted 0.8% in April, missing estimates of +0.3%. All in all, the data suggests that the manufacturing industry is still suffering from the effects of weak global demand and things are not set to improve just yet. Initially, the greenback dropped on the release but quickly returned to its initial levels. EUR/USD jumped 0.50% to 1.1217 before returning slightly below the 1.12 level. A support can be found at 1.1129, while on the upside a resistance lies at 1.1315 (Fibo 38.2% on April-May debasement).

In Japan, the yen continued to move sideways as April’s inflation figures came in roughly in-line with market expectations. CPI contracted 0.3%y/y, down from -0.1% in the previous month but beating median forecast of -0.4y/y. The BoJ’s preferred measure of inflation, the gauge that excludes fresh food, contracted 0.5%y/y, also missing estimates of -0.4% and below last’s month figure of -0.3%. We therefore would not be surprise if the BoJ announces another delay in its inflation target timing. USD/JPY has been trading range bound between 109.42 and 110.21 since yesterday. We maintain our upside bias.

Yann Quelenn, market analyst: “Japan: Inflation declines again: The Japan April National CPI came in higher than expected at -0.3% y/y but still lower than prior March data. The other inflation figure, the Tokyo CPI also printed below prior data at -0.5% y/y for this month. The very soft data will make it difficult to achieve the inflation target of 2% by the end of 2017. Common sense makes us wonder exactly how a country can achieve its inflation target in a year and a half when it has failed to do so for the last two decades.

The reality is that it is also the second straight month that inflation has been lower. The BoJ may believe that the recent yen strength is adding too much downside pressures on inflation. We clearly believe that the sales tax hike, planned to take place in 2017 will now be delayed or even taken off the table completely. From our vantage point, the BoJ will try to avoid any unnecessary turmoil concerning their domestic economy. Other issues are now likely to arise and Japan’s number may well be up. Rating agencies are starting to wonder whether Japan should be downgraded as future economic expectations now completely uncertain. The island’s massive debt, a debt-to-GDP ratio of 250%, will bury hopes for a sustainable recovery for a very long time” —

Crude oil prices tumbled on the $50 threshold as traders wonder whether the easing glut supply will last. The Brent crude was down 0.73% in Tokyo to $49.23 a barrel, while the West Texas Intermediate fell 0.63% to $49.17. In spite of a weaker crude oil, commodity currencies remained roughly unchanged, with the exception of the Canadian dollar, which fell 0.20% against the greenback. USD/CAD hit 1.30, up from 1.2911 yesterday in New York. The Australian dollar edged down 0.04%, the New Zealand dollar and the Norwegian krone remained.

In the equities market, Asian regional indices were broadly trading in positive territory across the board. In Japan, Nikkei is up 0.37%, while the broader Topix index rose 0.53%. In mainland China, the CSI 300 was up 0.07%. In Hong Kong, the Hang Seng surged 0.73%. The Australian S&P/ASX rose 0.33%. In New Zealand, the NZX was up 0.64%. In Europe, equity futures were mixed.

Today traders will get retail sales from Spain and Sweden; consumer and business confidence from Italy; GDP, personal consumption, core PCE and Michigan sentiment index from the US