Euro and Yen Marginally Higher in Listless Trade

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·          BOJ leaves ZIRP in place

·          EUR Inflation 2.5% buy core a bit softer

·          <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />UK Retail in line off World Cup demand

·          US TICS Empire and Philly on deck.

In what had to be one of the most boring trading sessions in months neither the euro nor the yen moved more than 20 points beyond theirNew York close as overnight news produced absolutely no surprises and order flow remained evenly matched between longs and shorts. As expected, BOJ  left ZIRP in place with the board voting unanimously to do so. In his press conference after the announcement, Governor Fukui did state that by draining excess liquidity from the system the central bank had removed the final obstacle to the end of ZIRP. The statement suggested that BOJ is now in the position to lift  ZIRP should it decide to do so yet at the same time, Mr. Fukui stressed the risk of falling stock prices as a destabilizing factor to the Japanese economy. In short as we noted several days earlier the fate of ZIRP lies primarily with the Nikkei.  Should Japanese equity indices stabilize, BOJ would be far more amenable that it is presently to the lifting of ZIRP.

In Euro-zone headline inflation printed in line at 2.5% but core was a tad softer at 1.3% versus 1.5% expected. This is the 12^th consecutive month of price data exceeding ECBs 2% target suggesting that the central bank will need to maintain its hawkish posture for the foreseeable future. Todays marquee event will be the TICs report from US Treasury which is expected to print at $60 Billion. Any material miss to the downside and the euro may extend its nascent rebound back to the 1.2700 figure as structural weakness concerns may once again resurface in the market. April was a decidedly weak month for the US dollar and foreign outflows may have been greater than market expectations. On the other hand, a surprisingly strong TICs number  could embolden greenback bulls, already assured of the 25bp rate Fed hike, to gun for the 1.2500 level which yesterday withstood several assaults at that barrier in the wake of hot US CPI numbers.

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