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Intermarket:
- SP Futures 3222 (+0.53%)
- EUSTXX 3334 (+0.45%)
- Crude Oil 38.35 (-1.56%)
- US 10YR 0.83 (-0.55%)
- EurUsd 1.1342 (+0.03%)
- UsdJpy 107.56 (+0.15%)
- DAX 12702 (+0.44%)
Risk assets remain buoyant into FOMC-Day, after the Nasdaq reached all-time highs yesterday, with Dow & SPX recovering approaching pre-coronavirus levels. EU equities lag.
But today will be all about the FOMC. The USD gained some strength yesterday as some position squaring in risk assets, alongside speculation of Yield Curve Control, went through the pipes. However, USD remains weak going into the event.
Here are the main focal points for today’s meeting:
- Economic Projections: markets have discounted horrible projections for 2020, and will be focused on how long the road to recovery will be. Evidently, quicker recovery projections are USD positive.
- The Dot Plot: does the FOMC plan to keep rates low until the end of 2021 or 2022? Or do they see rates rising into the end of 2022? Evidently any hint of higher rates will spur USD strength.
- Powell’s Outlook: is the worst behind us? Or is the FED worried about a second wave of Covid-19?
Analysts are dismissing Yield Curve Control or any further changes to policy, as it would be premature. Markets are pointing the same way, as the USD continues to soften into London this morning.
Ahead of the big event, a few things to note:
- Japan has joined the war of words against China. PM Abe told parliament Japan wants to take lead on G7 statement about Hong Kong and Motegi said he doesn’t have China in mind for loosening border measures.
- The EU’s chief Brexit negotiator Barnier is scheduled to speak later on, so keep your eyes on GBP.
- US CPI should come in hotter as gas prices were higher recently and reopening plans should also have benefitted prices.
Matters that Matter:
- Fitch: Corporates face $5trln revenue loss from 2020 crisis
- Air New Zealand to resume Tokyo services later in June; to offer weekly Auckland-Narita flight
- South Korea Kim: Starts to slowly pass first job market shock from virus; closely monitoring housing markets; warns of excessive optimism in financial markets
- Japan Motegi: Don’t have China in mind for loosening border measures
- Japan Abe: Wants to take lead on G7 statement about Hong Kong
- China May PPI Y/Y fell 3.7% from -3.1%
- China May CPI Y/Y up 2.4% from +3.3%
MAJORS 1-DAY VIEW:
USDJPY
• Sentiment posted a 2nd lower daily high & low taking prices below their 100 & 200 day average rates. The outlook remains negative today.
• Option expiries today: 1.1 bln 107.25-75
• JPY crosses on hold after backing off last week’s highs.
EURUSD
• Signals continue to point cautiously higher today.
• Opex not relevant, consolidation expected ahead of FOMC.
• Risk-assets buyoant in Asia, keeping USD down.
AUDUSD
• The market closed on Tuesday with a down-day and ended a long sequence of higher daily lows. This is short-term negative, but we suggest selling rallies.
• Opex today: .6400 1.0bln
• Some bank analysts are calling yesterday’s move a bearish reversal. Most look to sell close to .7000. AudJpy potentially better short.
GBPUSD
• Losses of 1 Big Fig on Tuesday were recovered for an unchanged close. Although this is mildly positive, signals for Wednesday remain unclear and just cautiously bullish.
• Barnier on the wires later regarding Brexit talks
• Close below 1.2573 needed to undermine the uptrend.
FX Relative Strength Grid
Key: Week Bias up (down) if there has been a daily close above (below) prior weeks’ high (low).
%-Location is whereprice is, relative to the prior week range. Above 100% means we passed prior week high. Below 0% means we passed prior week low.
%-Change: change in %-location since yesterday at 07.00 CET.
Comment: Yesterday’s action suggests profit taking in risk-fx, with CHF gaining the most ahead of FOMC.
FX Relative ATR
Key: 1 Day vs 13 Day ATR. Values > 100% mean Day ATR expansion. Values < 70% mean Day ATR contraction.
Comment: Ranges remained elevated yesterday as well, showing still decent intraday opportunities.