The Japanese yen is recovering from two-day two percent decline. The yen is the strongest of the majors today, rising about 0.6%. The greenback initially extended its gains marginally in early Tokyo before the selling pressure emerging. The price action reinforces the importance of the JPY109.50 resistance area.  

The Nikkei initially moved higher and filled the gap created by the sharply lower opening on May 3, following disappointment with the BOJ lack of action at the end of the prior week. However, after the gap was filled the Nikkei, like the dollar reversed lower.  

These dollar downticks look corrective in nature. The greenback has found some bids near JPY108.50. If this holds in the early going in North America, the dollar can recover and even re-test the highs as the unwinding of the large speculative long yen position is trimmed as the upside momentum stalled, and a cautiousness may be creeping in ahead of the G7 meeting and the heads of state summit later this month.  

Sterling extended the narrow range seen in Asia and early in the European session to the downside following a disappointing March industrial production figures. The miss was modest, and largely offset with upward revisions in the February, but it plays on investor anxiety about the slowing of the UK economy ahead of the BOE meeting and Quarterly Inflation report tomorrow.   

Industrial output rose 0.3% instead of 0.5% that of the median economist forecast according to a Bloomberg while the February series was revised to -0.2% from -0.3%. Manufacturing production rose by 0.1% instead of 0.3% while the February decline was revised to -0.9% from -1.1%.  

Despite the decline, sterling remains within yesterday’s range. It dipped briefly through $1.4410. Yesterday’s lows was just below $1.4390, and Monday’s low was $1.4375. Resistance is near $1.4480.  

The Dow Jones Stoxx 600 is off 0.6%, seeing its first losses of the week. Nearly all sectors are lower, led by financials, utilities, and energy. Brent oil prices are paring yesterday’s gains after the API estimates showed a 3.4 mln barrel increase.  It makes the government estimate later today important for near-term directional cues.