Data today unlikely to help the USD
Fed policy makers continue to signal that improved data could pave the way for a tapering of QE3 asset purchases in the months ahead. The latest FOMC voter to weigh in was Boston Fed President Rosengren (normally viewed as dovish), who indicated overnight that he might support tapering, albeit with there is a pretty high bar on strong data to justify this. Data today may cool down tapering expectations — on weekly initial jobless claims, we expect a tick back up in filings toward 350k, above the 340k consensus. Q1 GDP is also likely to be revised down — we expect a 2.2% annualized rate vs the 2.5% initially reported and contrary to market expectations for no revision. We expect the USD to struggle to extend gains against the EUR and commodity bloc in the near-term, but remain constructive on USDJPY and USDCHF. Although the latest Japan portfolio data shows that domestic investors sold a larger JPY 1.17tn of foreign bonds and JPY 104.9bn of foreign stocks in the week of May 24 compared to –JPY800bn and –JPY136.9bn the prior week, nonetheless, there was net investors outflows of JPY739.9bn as foreigners sold net JPY 457.2bn and a hefty net JPY 1.55tn of Japanese bonds and bills, respectively. We also still believe that BOJ’s aggressive JGB buying would crowd out local investors, pushing them to step up purchases of foreign bonds and stocks.
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BNP Paribas