Market Brief
As broadly expected, the Federal Open Market Committee left short-term interest rates unchanged at between 0.25% and 0.50%. Since there was no press conference, the market had nothing to get its teeth into apart from the statement. The latter was little changed compared to the one from January, indicating that the Fed sticks to its dovish position. The line saying that “the global economic and financial developments continue to pose risks” was removed, but on the other hand the Fed agreed that the domestic economic activity appeared to have slowed. All in all, it was roughly in line with the market was expecting, and USD crosses remained flat as investors had already priced in that the Fed would most likely hold fire in June. It is now almost a sure thing. EUR/USD fell initially to 1.1272 before bouncing to 1.1362, and finally consolidate at 1.1322.
In Japan, the BoJ announced that the bank needs more time to assess the impact of negative interest rates, thus maintaining its monetary stimulus. Nevertheless, the move came as a surprise as the market was expecting the BoJ to take action in response to the recent JPY’s strength that could delay the BoJ’s inflation target. This decision raised some important questions. Is the BoJ worried about the real effects of ultra-accommodative monetary policy on growth and inflation? Or does the central bank really need more time to fine tune its negative interest rate tool? However, one thing is clear: the BoJ made clear that the market will not dictate what the central bank should do. USD/JPY collapsed more than three figures or 3.25% and reached 108.20, the lowest level since April 18th. The closest support lies at 107.63 (low from April 11th), further south another support lies at 105.23 (low from October 2014). In our opinion, the first support should not last long given the rapid building in long JPY positioning.
On the commodity market, the West Texas Intermediate was unable to break the strong $45 resistance level and stabilized nearby. Similarly, the international gauge, the Brent crude, tumbled on the $47 level, down 0.53%.
On the equity market, the BoJ decision dampened the mood as Japanese equity fell sharply with the Nikkei 225 down 3.61% and the Topix down 3.16%. In mainland China, the Shanghai Composite and Shenzhen Composite slid 0.26% and 0.13% respectively. In Hong Kong, the Hang Seng edged up 0.45%. in Europe, equity futures are blinking red across the board, pointing to a lower open as the negative mood is spreading from Asia.
Today traders will be watching CPI from Spain and Germany; retail sales from Sweden; unemployment from Germany; consumer confidence from the Eurozone; initial jobless claims, GDP, personal consumption and core PCE from the US.
Currency Technicals
EURUSD
R 2: 1.1714
R 1: 1.1465
CURRENT: 1.1353
S 1: 1.1144
S 2: 1.1058
GBP/USD
R 2: 1.4959
R 1: 1.4668
CURRENT: 1.4588
S 1: 1.4284
S 2: 1.4132
USD/JPY
R 2: 112.68
R 1: 111.91
CURRENT: 108.29
S 1: 107.63
S 2: 105.23
USD/CHF
R 2: 1.0093
R 1: 0.9913
CURRENT: 0.9672
S 1: 0.9476
S 2: 0.9259