The Bank of Japan waxed slightly more optimistic in its latest statement from its meeting overnight, as recent noise from BoJ officials and reports in the press suggested would be the case.
The shift towards optimism was hardly a bombshell, however, as the adjustments in the new statement were as much about omission of previously more negative language as they were about adding any distinctly positive comments.
The recent Japan Q1 GDP report released earlier this week looked solid, though the rise in inventories is a concern, and the inflation target still appears very far away, with the risk that May inflation data (not for release until late June) will reveal that Japan is in deflation on a year-on-year basis.
Still, the BoJ statement claims that inflation expectations are rising. The market reaction to the BoJ statement was muted, with USDJPY dipping back lower into the range. The bulls fear that we will repeat 2014, which saw tight, rangebound trading from January until August, before the logjam was finally broken.
The USD appears stuck in neutral for the moment, as the market is finding little reason to boost the greenback further as long as the Fed outlook awaits incoming data – still one factor in support of the USD includes strong risk appetite (particularly for EURUSD).
The market looks uncertain here ahead of a three-day weekend (for US and UK) and could be quite reactive to any significant surprise on today’s US CPI release.
USDCAD
USDCAD is fairly typical of many USD pairs at the moment, where the USD has put in enough of a rally to pull out of the danger zone, but not enough of a rally to declare a return of the USD bull market.
We're watching USDCAD with interest today as both the US and Canada release their respective inflation data and Canada is also out with its March retail sales data.
Bulls will want any further dips to be quickly countered here as we watch for whether the pair can cross back through the “gap” between recent highs and the old range above 1.2350/1.2400.
The G-10 rundown
USD: The USD rally has run out of some steam and the greenback will need to put up some fight today or we’ll be faced with the prospect of another bout of boring range trading in what has been a mostly very rangebound year for many USD pairs. Watch out for the CPI data up later and the Fed’s Janet Yellen out speaking as well.
EUR: Risk of further consolidation higher in EURUSD, particularly on any negative US CPI surprises today, with the mild variety looking at the 1.1200-25 zone, and a risk toward 1.1300 if that zone is taken out. To the downside, close back toward the 1.1065 support is needed to encourage the outlook for the return of the down-trend unfolding sooner rather than later.
JPY: A slight boost from the BoJ and USDJPY keeping us all guessing. Elsewhere, EURJPY looks heavy, particularly if we see it follow through below the 134.00 area. AUDJPY is also looking to pivot one way or another, as discussed in yesterday’s FX Board.
GBP: Might be too early to declare, but sterling is too strong – looking for GBPUSD to as a way to express this, though pattern-wise, not much to go on unless we erase yesterday’s rally. In EURGBP, there may be a bit more downside to milk from this trend before consolidation sets in – watching the 0.7125/50 resistance area to the upside and then 0.7000+ to the downside.
CHF: Again, the timeline for news on Greece is getting very compressed here – generally preferring the downside for the franc once a deal is announced – but trader might want to consider expressing a view through optionality – EURCHF or USDCHF.
AUD: Popped back higher against the consolidating USD overnight, and room for a bit more consolidation before the bears become uncomfortable – to 0.7975/0.8000, even, but still preferring for a return to the downside eventually.
CAD: Watching for today’s data to provide the next catalyst for CAD. Keeping the USDCAD focus higher unless we dip back well below 1.2100.
NZD: Popped higher despite the disappointing ANZ Consumer Confidence reading for May overnight, perhaps as traders were disappointed that the fresh local lows in NZDUSD didn’t provide additional downside momentum. AUDNZD traders should note that we have dipped back to the 200-day moving average.
SEK: The selloff in EURSEK is running out of momentum within the range. Tough to buy a currency where the risks are skewed to more and more QE if a stronger currency threatens to keep the deflation spectre alive. Still, if we do manage to break and close below 9.22, it could be a setup for a probe toward.
NOK: Generally looking for relative weakness and would likely have seen more (note correction in NOKSEK), were it not for the resilience in oil. Still, NOK is a boring proposition as long as we are stuck in this 8.30-50 range in EURNOK.
Upcoming Economic Calendar Highlights (all times GMT)
- Germany May IFO (0800)
- Eurozone ECB’s Draghi to Speak (0800)
- Bank of England’s Carney to Speak (1100)
- Canada Apr. CPI (1230)
- Canada Mar. Retail Sales (1230)
- US Apr. CPI (1230)
- US Fed Chair Yellen to Speak (1700)