Apparently some traders were pricing in the risk of a dovish Bank of Japan meeting overnight, given the sluggishness in Japan’s economy and the clear lack of progress towards the bank’s inflation target, with the CPI threatening to register 0% and lower in coming months (year-on-year) as we get more than a year beyond last April’s VAT hike.
But the monetary policy statement was largely indifferent and saw the same lone hawkish dissenter as at previous meetings. In any case, fresh JPY bears were disappointed by the turn of events and pulled back on their shorts – keeping the USDJPY in the most tiresome range in recent memory and saving the bearish in pairs like EURJPY and GBPJPY, with the latter in particularly interesting after yesterday’s attempt higher through the 200-day moving average was rejected.
Chart: GBPJPY
GBPJPY reversed back lower after the Bank of Japan meeting overnight failed to produce anything new and disappointed the JPY bears. The resulting sell-off in GBPJPY was especially interesting due to the pair’s interaction with the important 200-day moving average, with yesterday’s cross above that level erased overnight. This could re-sharpen the interest in selling this pair as long as we remain below the 200-day moving average, though the broad JPY outlook has been somewhat uncertain as USDJPY has been stuck in a range for quite some time.
Today’s major focus will be the release of the Federal Open Market Committee minutes this evening, with the market fully pricing a very dovish set of minutes and plenty of hemming and hawing from the various FOMC members on the timing of the first Fed rate hike. While it is unlikely that we’ll see anything overtly hawkish in these minutes, which are always a mixed bag, the market has significantly committed to a dovish expectation, with barely more than two rate hikes (0.50%) priced in through mid-2016, so the bar for unexpected hawkishness in interpreting these minutes should be very low.
The G-10 rundown
USD: The picture is not consistent in broad terms as we wait for the post FOMC-minutes action for a bolder statement on where we stand technically. There is two-way risk from these minutes.
EUR: Generally weak, with perhaps ad hoc Greece headline risks in coming few days. EURUSD bears will want to see this 1.0800 level taken out after the FOMC minutes tonight. Any rally and close that clears 1.0900/25 tonight threatens the near-term bearish case.
JPY: Reverting back to the strong side after a passive BoJ meeting overnight. To get additional traction, we’ll likely need to see some risk off or an exceptionally dovish FOMC (though wouldn’t that be risk positive?). In any case, any bold stance on JPY requires that USDJPY blast either above 121.50 or below 118.50.
GBP: Trying to pull higher against the Euro again this morning, as EURGBP and EURUSD are likely to be correlated. GBPUSD has been a mess for a long time, though the technical situation in GBPJPY is perhaps the most interesting (see chart above). Not expecting anything from the BoE meeting tomorrow.
CHF: Passively trading against the Euro, where we’ve been stuck in the 1.0400-1.0500 range in EURCHF for eight trading days now – no interest in selecting CHF pairs until we get out of this range.
AUD: Near-term direction looks nervous and will react to FOMC minutes tonight in AUDUSD. Watching 0.7750 and possibly having to even allow for 0.7800 to the upside if FOMC doesn’t spark a USD rally.
CAD: Resilient on the strong rally in oil over the last couple of days and looks like it wants to threaten range lows unless FOMC minutes boost the USD tonight. Friday’s employment report from Canada next data point of interest for CAD traders.
NZD: Watching AUDNZD and NZDUSD for a follow-up sell-off in NZD after recent weakness. Tonight’s post-FOMC minutes action should give us a clue on where we stand on NZDUSD at minimum, where bears need the action to punch down to new local lows well below 0.7500 to build a better downside case.
SEK: Continues to look higher as long as 9.35 area remains intact as support, though bigger picture not compelling as we are in the middle of an enormous range. May be more interesting to look for bearish reversals from higher levels.
NOK: Remarkably weak given the sharp rise in oil prices over the last few trading days – would feel more comfortable looking for higher levels in EURNOK if the oil price would head back toward the lows. Next event risks up on Friday with CPI and Industrial Production data.
Economic Data Highlights
- UK Mar. BRC Shop Price Index out at -2.1% YoY vs. -1.7% in Feb.
- Japan Feb. Adjusted Current Account Balance out at ¥603.5B vs. ¥605B expected and ¥1058.1B in Jan.
- Japan Bank of Japan left Monetary Base growth target unchanged at ¥80T per year.
- Germany Feb. Factory Orders out at -0.9% MoM and -1.3%% YoY vs. +1.5%/+0.5% expected, respectively and vs. -0.3% YoY in Jan.
Upcoming Economic Calendar
- Euro Zone Feb. Retail Sales (0900)
- Hungary Central Bank of Hungary Meeting Minutes (1200)
- US Fed’s Dudley to Speak (1330)
- US Fed releases FOMC Meeting Minutes from March 17-18 meeting. (1800)
- UK Mar. RICS House Price Balance (2301)
- Australia Mar. Performance of Construction Index (2330)
- Japan Bank of Japan’s Monthly Economic Report (0500)