Market Brief
The BoJ maintained the pace of its annual monetary base increase unchanged at 80 trillion yen, while the core inflation (at 0-0.5% range) is seen as depressed. Japan FinMin Aso mentioned China as a downside risk to Japanese recovery, while adding that one-two year period is not enough to modify the mindset in an economy after 20 years of struggle against deflation. According to Reuters survey, 55% of Japan firms would continue pushing wages higher, however, ’14-’15 combined salary increases would not be sufficient to cover April’14 sales tax hike. Hence the obstruction is well beyond the Japanese household mindset! JPY crosses traded mixed, the Nikkei stocks advanced by 0.99%. USD/JPY remained ranged at 121.25/52 in Tokyo. Trend and momentum indicators remain marginally bullish, primarily subject to FOMC positioning. Vanilla calls trail above 120.80/121.00 for today’s expiry, yet fresh boost is needed to clear 121.85/122.04 supply zone. The Fed may be that fresh boost, if as expected, it removes its call for “patience”. The US 10-Year yields stabilize at 2.05% / 2.10% as the FOMC starts its two-day policy meeting today.
EUR/USD consolidates losses, the Greek/EU agreement remains a pending issue. Eurozone’s February final CPI figures are due today, the consensus is +0.6% improvement on month and stable headline inflation at -0.3% and core inflation at 0.6% on year. The sentiment remains comfortably negative with limited room for recovery before Mar 18th FOMC verdict. Resistance is seen at 1.0712 /25 (Fib 23.6% on Feb-Mar drop / optionality). We see open-end downside with explicit global mid-term target set at the parity. The divergence between the Fed and the ECB will keep the bias negative, yet an immediate EUR-unwind is contingent on Fed decision tomorrow.
The minutes of the latest RBA meeting revealed that a rate cut has been considered (we never doubted it), yet the committee decided to wait for more data. Nobody knows how long the RBA will remain on hold or will there be any need for additional rate cut; it also depends on relative rate divergence across the globe. A concrete step from the Fed toward policy tightening will push AUD/USD toward Stevens’ 75 cent target and lower, and will certainly postpone a potential RBA action on rates.
Central Bank of Turkey gives verdict today and is expected to maintain the status quo amid President Erdogan and government softened their aggressive call for lower rates last week. While traders remain skeptical due to non-null event risk (maybe a tiny 25 basis point cut as twinkle to politicians?), a non-action should revive short-term TRY bulls. On USD/TRY, the support is presumed at 1.5840 (Mar 12/13 double bottom) as hawkish FOMC bias should keep the USD appetite tight. The visibility thereafter is limited and it all depends whether the Fed will stop calling for “patience” (base case scenario) or not.
GBP/USD recovers reticently as latest polls suggest the advance of the Labour party over Tories (Populus poll: Labour 32%, Conservatives 29%, ComRes poll: Labour 35%, Tories 33%). We attach little importance on poll results given their highly volatile results. Yet warn traders on potential rise in GBP volatilities walking into May 7th general elections. Uncertainties should anchor the GBP down verse USD. Election jitters thicken 1.50 barriers on the option markets.
Today, traders focus on EU27 New Car Registrations in February, Spanish 4Q Labour Costs y/y, Norwegian February Trade Balance, Euro-zone 4Q Employment q/q & y/y, German March ZEW Survey for Current Situation and Expectations in Germany, Expectations in the Euro-zone, Euro-zone February CPI m/m & y/y, Canadian January Manufacturing Sales m/m, US February Housing Starts and Building Permits m/m.
Currency Tech
EUR/USD
R 2: 1.0893
R 1: 1.0725
CURRENT: 1.0612
S 1: 1.0458
S 2: 1.0400
GBP/USD
R 2: 1.5137
R 1: 1.5027
CURRENT: 1.4823
S 1: 1.4700
S 2: 1.4547
USD/JPY
R 2: 124.14
R 1: 122.03
CURRENT: 121.40
S 1: 120.61
S 2: 119.38
USD/CHF
R 2: 1.0240
R 1: 1.0190
CURRENT: 1.0048
S 1: 0.9970
S 2: 0.9825