YEN SLIPS AS TOKYO POSTS SECOND DEFICIT OF 2017

The Japanese yen edged lower on Monday after government data showed an unexpected trade deficit for the month of May.

Sharp import growth resulted in a deficit of 203.4 billion yen last month, the Ministry of Finance reported Monday. Analysts in a median estimate forecast a merchandise trade surplus of 76 billion yen. Exports rose 14.9% from a year earlier, while imports surged 17.8%.

The yen approached two-week lows against the dollar, which has struggled to gain momentum in recent sessions. The USD/JPY exchange rate reached a session high of 111.21.

Exports have been a source of strength for the Japanese economy and were largely responsible for the steady first quarter expansion. Japan’s gross domestic product (GDP) has expanded for five straight quarters, which is the longest streak of uninterrupted growth in over a decade.

In other data, Eurozone construction output rose 0.3% in April, data from the European Commission’s statistical agency showed Monday. This translated into an annualized gain of 3.2%.

The euro was quiet on Monday amid a dearth of economic data. The US dollar was also trading within a narrow range and was virtually unchanged against a basket of other rivals.

In commodities, oil prices started the week on the defensive as traders reacted to the latest batch of oil-rig data. However, prices would later recover in a broad consolidation that took US crude back toward the $45.00 handle.

On Friday, energy services provider Baker Hughes Inc. said the US oil rig count rose for the 22nd consecutive week, offering further evidence of a shale industry resurgence. The rig count rose by six to 747, the highest since April 2015.

US crude futures reached seven-month lows last week. Although prices rebounded, the market remains in a firm downtrend.

USD/JPY

The outlook on the USD/JPY is looking increasingly bullish, as the pair continues to test multi-week highs. Gains on Monday suggest the currency pair is ready to make another attempt at piercing through the 111.60 range on route to 112.00. The USD/JPY is considered bullish insofar as prices hold above the psychological 110.00 support zone.

EUR/USD

The EUR/USD continued to hold the 1.12 handle ahead of the North American session, which continues to offer immediate resistance. A clean break above this level could send prices back toward the mid-1.120 region, which would serve as a catalyst for a re-test of the yearly high above 1.1280. On the opposite side of the spectrum, near-term support is targeted near 1.1155, followed by 1.1130.

WTI Oil

US West Texas Intermediate (WTI) traded slightly higher on Monday but remains in a firm downtrend extending back to 25 May. With no clear technical reversal in sight, the outlook remains bearish. However, the contract appears to have found strong support at the May swing low, which suggests prices should stay rangebound for the interim period.