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Forex Flash: Exaggerated risks of South Korean deflation - Nomura

FXstreet.com (Barcelona) - Nomura economist Young Sun Kwon notes that with CPI inflation falling to 1.2% y-o-y in April (below the BOK's target), there are increasing concerns about the possibility of deflation. However, he doubts that the BOK will concur.

With regard to deflation risks in Korea, he begins by noting that the absence of the role of money supply and the failure to distinguish between relative prices and general price levels is a concern. He adds that Inflation (and deflation) is, in the long run, a monetary phenomenon. He notes that the Bank of Korea (BOK) today released its monetary data for March and the liquidity aggregate in financial institutions gained 7.5% y-o-y in Q1 2013, up from 7.1% in Q4 2012 (and versus nominal GDP growth of 1.5%). The rate of money supply growth has been higher than nominal GDP since Q3 2011, suggesting that monetary conditions have been accommodative with two 25bp rate cuts in 2012. He feels that some market participants may attempt to use the risk of deflation to urge the BOK to cut policy rates, but this would be mistaken, in his view. He writes, “The Korean economy does not need a quick dose of further monetary stimulus, in our opinion. We also doubt that a majority of MPC members would be swayed, and as such we maintain our call for no further rate cuts through 2013.”

Forex Flash: Bund weakness on the horizon – RBS

According to Technical Strategist Dmytro Bondar at RBS, “I was over-optimistic about the market, which failed to recover above the 20-day MA and broke below the 146.00 support, suggesting there would be more weakness in the short term.”
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Forex Flash: EUR/USD stability is impressive, considering... - BTMU

Derek Halpenny, European Head of Global Markets Research at the Bank of Tokyo Mitsubishi UFJ notes that given the ECB rate cut, speculation on negative rates, and the strong US employment report, the stability of EUR/USD is impressive.
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