Forex News and Events
Impeachment process goes on
Dilma Rousseff, Brazil’s president, is definitely on the hot seat after a congressional impeachment committee voted (38-27) on Monday to recommend a trial in the Senate (upper house) on charges of breaking budget laws. Even though this vote is non-binding, it clearly set the tone for the lower-house (the Chamber of Deputies) for another vote, which is expected on next Sunday (April 17th). A two-third majority is required (342 out of 513) in favour of impeachment before moving the case to Senate for another vote. If the move is approved by the lower house on Sunday, Dilma Rousseff will likely appeal the decision to the Supreme Court, which would delay the Senate’s vote meaning that she would stay in office during the court’s deliberation and then decision.
Looking at the FX market and more specifically USD/BRL, the latest developments towards impeachment impacted positively the Brazilian real as the pair hit 3.4871, the lowest level since mid-August last year. However, we remain sceptic that the real would hold recent gains since nothing has really changed at the root of the problem - i.e. the fiscal gap - for now as it is only the results of speculations that the new government - in case of successful impeachment - would address the situation quickly.
Focused on Fed speakers
Looks like all the hype around rising volatility in the past weeks has settled down as we anticipated. US corporate earnings releases have been largely uneventful, keeping S&P 500 in its tight 40 point range, and allowing VIX index to pause around 16.26 levels. While the US yield curve has further flattened, US 2-year yields are struggling to stay above 0.71%. USD was marginally weaker against G10 (exception is JPY due to Japan FinMin Aso comments and speculation over FX intervention) EM currencies ahead of a heavy Fed speaker line-up today. As we mentioned yesterday the bearishness surrounding USD (highlighted by IMM data indicated the rapid liquidation of USD longs) based on skepticism on the FOMC interest rate path could reverse in the short term due to hawkish communication. FX markets are increasingly sensitive to fed comments and this afternoon brings known hawks Philadelphia Fed President Harker, San Francisco Fed President Williams and Richmond Fed President Lacker.
Fed Harker is a new member for the FOMC this year that has steadily shifted towards the hawkish end of the spectrum. Harker's comments could shed some light on the migration of balanced members towards a hawkish stance and influence on the fed’s March communications. Fed Lacker is probably the most hawkish FOMC member and is likely to take direct aim at Chair Yellen’s leadership in a speech entitled “Economic Leadership in an Uncertain World”. Lacker has been critical of Yellen’s control of the FOMC and is expected to develop this view today. Further confusion and divergent views within the Fed will only increase the market’s uncertainty. A steady stream of hawkish headlines should drive temporary USD bullishness. However, without interest rate support it is unlikely that any strength will last. EUR/USD upside should be contained by 1.1450 resistance with a bearish target located at 1.1327 support.
USD/JPY - Range trading.
