The latest Chinese data was weaker than expected with misses for industrial production and retail sales, but the overall impact was limited as equity-gains elsewhere helped underpin risk appetite. Ranges were relatively narrow with EUR/USD initially holding just above 1.3750 before sliding again as the main focus was on Euro-zone developments.
The Euro initially suffered during the European session from a weaker than expected German ZEW survey release. The consensus forecast was for a small decline for April, but there was speculation over a possible increase. In the event, there was a sharper than expected fifth successive monthly decline to 33.1 from 43.2 previously which undermined confidence and initially EUR/USD to test the important 1.3740 support area.
The pre-New York session was then dominated by comments from the German Bundesbank. Sources suggested that it would support a cut in interest rates at the June ECB meeting. The pre-condition for such action being a lowering of 2016 inflation forecasts in the latest staff projections which will be presented at the meeting. There was also talk that the Bundesbank would tolerate negative deposit rates. The comments reinforced market expectations of action and triggered sharp Euro losses below 1.3740 with EUR/USD dipping to one-month lows near 1.3700.
A subsequent Bundesbank statement attempted to downplay the importance of the sourced comments while committing the bank to looking at all available information. Nevertheless, the underlying damage had already been done and the Euro continued to test monthly lows.
Although the dollar was able to take advantage of European vulnerability, momentum stalled after the latest US retail sales report. There was a headline increase of 0.1% for April compared with expectations of a 0.5% gain. Potential damage was offset by upward revisions to March data with a similar picture for core sales which were unchanged for the month.
EUR/USD attempted to pull away from 1.3700 support without being entirely convincing. USD/JPY was unable to break above 102.35 and retreated back towards 102.00 following the US data. The yen was unable to gain traction given persistent strength in global equity markets as the S&P looked to test levels above 1900.
Commodity currencies drew inspiration from hopes for low global interest rates and interest in carry trades rather than Euro weakness as USD/CAD hit selling interest above 1.0920 while AUD/USD found support below 0.9350. Sterling was hampered by expectations that favourable data and more hawkish Bank of England had already been priced in and GBP/USD dipped to 1.6825 lows before finding some respite.