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18 Mar 2015
What's next: BoE/UK jobs aperitif, FOMC main course
FXStreet (Bali) - The G10 FX space displayed subdued activity in Asia, as widely expected, with non-committal traders sidelined ahead of the FOMC. The key question for today though, is going to be, will the Fed show its most committal side by removing 'patience' from its monetary policy statement later today? And if so, what would that mean?
Main headlines in Asia
NZ current account Q4 slightly below expectations
Westpac cuts forecast for Fonterra's 2014/15 payout
Japan Merchandise Trade Balance Total came in at ¥-424.6B, above expectations (¥-1050B) in February
Dominating themes in Asia - centered on JPY, AUD, NZD
AUD/USD traded in a slim range between 0.7630 and 0.7610, with the only data release of note out of Australia being the Australia Westpac Leading Index (MoM), which climbed from previous 0.1% to 0.3% in February. AUD was relatively firm despite Dalian iron ore futures were down by almost 4% and news that Australian Iron-Ore producer Fortescue had to postpone a high-yield bond, citing unfavorable conditions in the US market, and raising concerns over its financing ability. USD/JPY was range-bound, confined between 121.40 and 121.27, with a flat Nikkei 225 providing 0 stimulus for price to move outside its value area. NZD/USD failed to regain 0.7320 resistance after the disappointing GDT auction Tuesday.
Heading into Europe - centered on EUR, GBP
Ahead of the FOMC meeting, GBP traders are expected to enjoy decent 2-way business on the release of the UK employment data and the BoE minutes, both due at 9.30 GMT. Valeria Bednarik, Chief Analyst at FXStreet, "anticipates the Central Bank to keep a dovish tone, and delay a possible rate hike for next year." Technically, "the short term picture supports some additional declines", our in-house Analyst notes.
RBS FX Strategists go more in depth on the potential BoE outcome, noting that "they have surprised on the hawkish side both in their recent commentary and in their February Inflation Report, where it forecast that inflation would rise above target over the forecast horizon based on market pricing of the expected path of the Bank Rate."
However, the British Bank Strategists ultimately "believe that price inflation will underwhelm the Bank’s expectations, and Governor Carney’s comments on the potential dampening impact of the currency on inflation last week is perhaps an early sign that the BoE is becoming more concerned about the path of inflation", they added.
With regards to the EUR/USD, the only data of interest in Europe will be the EU trade balance, and to a lesser degree the construction output. Looking at the technical picture, a more constructive profile is building short term, although key levels are still keeping the bear trend intact. That said, it remains interesting to see how price will evolve from here, after the last CFTC FX futures positioning report revealed that the last sharp decline in the pair though early March came on the back of no new addition of short specs, with EUR long specs being caught upside down - liquidating positions - behind what fueled the sharp selling. Under such conditions, if they persist, the market tends to exhaust at some stage, given the lack of EUR short specs commitment to re-engage.
Jim Langlands, Founder at FXCharts, shared his view on the EUR/USD ahead of the FOMC risk event, noting: "Today is likely to be uneventful until the outcome of the FOMC meeting is known, when traders will largely focus n whether the word “patient” will continue to be part of the Fed’s strategy, or whether it will be removed from the Statement, signalling an impending rate hike in the next few months which would send the Euro sharply lower."
Main headlines in Asia
NZ current account Q4 slightly below expectations
Westpac cuts forecast for Fonterra's 2014/15 payout
Japan Merchandise Trade Balance Total came in at ¥-424.6B, above expectations (¥-1050B) in February
Dominating themes in Asia - centered on JPY, AUD, NZD
AUD/USD traded in a slim range between 0.7630 and 0.7610, with the only data release of note out of Australia being the Australia Westpac Leading Index (MoM), which climbed from previous 0.1% to 0.3% in February. AUD was relatively firm despite Dalian iron ore futures were down by almost 4% and news that Australian Iron-Ore producer Fortescue had to postpone a high-yield bond, citing unfavorable conditions in the US market, and raising concerns over its financing ability. USD/JPY was range-bound, confined between 121.40 and 121.27, with a flat Nikkei 225 providing 0 stimulus for price to move outside its value area. NZD/USD failed to regain 0.7320 resistance after the disappointing GDT auction Tuesday.
Heading into Europe - centered on EUR, GBP
Ahead of the FOMC meeting, GBP traders are expected to enjoy decent 2-way business on the release of the UK employment data and the BoE minutes, both due at 9.30 GMT. Valeria Bednarik, Chief Analyst at FXStreet, "anticipates the Central Bank to keep a dovish tone, and delay a possible rate hike for next year." Technically, "the short term picture supports some additional declines", our in-house Analyst notes.
RBS FX Strategists go more in depth on the potential BoE outcome, noting that "they have surprised on the hawkish side both in their recent commentary and in their February Inflation Report, where it forecast that inflation would rise above target over the forecast horizon based on market pricing of the expected path of the Bank Rate."
However, the British Bank Strategists ultimately "believe that price inflation will underwhelm the Bank’s expectations, and Governor Carney’s comments on the potential dampening impact of the currency on inflation last week is perhaps an early sign that the BoE is becoming more concerned about the path of inflation", they added.
With regards to the EUR/USD, the only data of interest in Europe will be the EU trade balance, and to a lesser degree the construction output. Looking at the technical picture, a more constructive profile is building short term, although key levels are still keeping the bear trend intact. That said, it remains interesting to see how price will evolve from here, after the last CFTC FX futures positioning report revealed that the last sharp decline in the pair though early March came on the back of no new addition of short specs, with EUR long specs being caught upside down - liquidating positions - behind what fueled the sharp selling. Under such conditions, if they persist, the market tends to exhaust at some stage, given the lack of EUR short specs commitment to re-engage.
Jim Langlands, Founder at FXCharts, shared his view on the EUR/USD ahead of the FOMC risk event, noting: "Today is likely to be uneventful until the outcome of the FOMC meeting is known, when traders will largely focus n whether the word “patient” will continue to be part of the Fed’s strategy, or whether it will be removed from the Statement, signalling an impending rate hike in the next few months which would send the Euro sharply lower."