Deflation, Not Inflation, Might Dominate Headlines Tomorrow (Euro Open)

Key Overnight Developments

• Japanese Unemployment Hits 5.5 Year High • Japan's Industrial Production Jumps By Most in Six Years

Critical Levels Euro price action traded to pivot resistance before heading back down, but failed to break the 1.39 mark. Sterling confined itself to the upper 1.59 mark, showing topping-out characteristics that could see the Dollar move ahead at the start of next week's trading. Asia Session Highlights

The price of Japanese Consumer Goods fell for a third straight month in April, by 0.1%, which was better than economists had forecast. March also saw the figure fell by 0.1%. Retail Sales may have contributed to the fact that the CPI number did not accelerate in a negative direction. In fact, data for April showed that consumer increased their appetite by 0.6% after having plummeted 1.1% in the month prior. This upward pressure on prices might not hold steady in future months if the island economy continues to dwindle.

Japan's Jobless Rate rose by to the highest level since late-2003, by 0.2 percentage points to 5.0% in April. In line with expectations, the figure rose as the economy continued to drag the labor market down. The much watched jobs-applicant ratio tanked to a 10-year low of 0.46 from 0.52. In a sign that workers might be turning a bit optimistic, the number of new applicants as a percentage of the total work force rose a tick to 0.77%. This coincides with the nation's consumer confidence number, which rose to 33.2 in April, from 29.6 in the month prior.

Japan's Industrial Production in April soared by the most in at least six years, when the data first began being compiled. Indeed, the key metric, rose 5.2% in the month after economists had forecast it to rise by only 3.3%. The 12 months through the end of this period saw such production fall 31.2%.

Australia's Private Sector Credit, the amount that banks loan to business and consumers, rose by 0.1% in April from the month prior. The steady increase may be as a result of a monetary policy reluctant to continue a rate-cutting campaign. Euro Session: What to Expect

Euro-Zone Consumer Prices are expected to to have risen only 0.2% in the year through the end of May. If Germany, the zone's largest economy, is of any indication, CPI data might actually come in lower than the surveyed figure. Germany's inflation rate underscored estimates by 0.2 percentage points and may see its own data heavily weigh on the broader Euro-Zone's published number. Just yesterday we saw that the Unemployment Change number came in significantly under that which was surveyed. At only 1,000 new jobs created, as opposed to the expected 64,000, the upward pressure that would normally be felt on the price of goods might not actually be completely there. Indeed, as more people are unemployed, the less cash there exists to be spent on various items included in the CPI basket.

Such developments may also lead German Retail Sales to come in largely under that which is expected. The overly optimistic 0.5% expected number might actually continue to be a negative one. But as a recent revision have shown, March's spending data was actually not as bad as what the government had originally reported.

The Swiss KOF Leading Indicator will likely continue to be in the negative region, but may show signs of relief by reducing the rate of deterioration if not actually showing an upward tick. With the number of exports surging ahead by 8.3% in April alone, and the unemployment level rising in line with expectations by only a 0.1 percentage point we may see the Swiss economy somewhat stabilize. To be notified by email when the Euro Open is published, please contact ispivak@dailyfx.com.