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Intermarket:
• SP Futures 3965 (+0.04%)
• EUSTXX 3871 (+0.49%)
• Crude Oil 64.15 (-0.70%)
• US 10YR 1.64% (+1.20%)
• EurUsd 1.1965 (-0.11%)
• UsdJpy 108.85 (+0.01%)
• DAX 14696 (+0.70%)
Risk appetite remains supported into today’s European open after the FOMC’s dovish slant with no dots in 2023, Powell still viewing the rise in inflation and yields as temporary. However, most analysts agree that the FED is just delaying the inevitable: a hawkish tilt will come, perhaps in May/June. Equity futures remain buoyant into today after SP500, Dow, Nasdaq, Russell all posted gains yesterday. Yields remain supported with the 10YR at 1.66%. USD is weaker.
Overnight Nikkei posted a story that the BOJ may allow long-term interest rates to move in a slightly larger range of about 0.25%, plus or minus, versus 0.2% now. BoJ may also abolish ETF purchasing targets and instead vow to make such purchases only in times of market turmoil. JPY complex moved lower on this ahead of tomorrow’s rates decision.
New Zealand Q4 GDP came out weaker than forecast, on quarterly growth fell 1.0% and -0.9% annually. On the contrary, AU employment data was strong and the RBA seems behind the curve. AUDNZD in focus on the divergence in data.
Looking ahead: today we get the Bank of England rates decision; ECB’s Lagarde, de Guindos and Schnabel will be speaking; the first meeting between the Biden administration and China will take place. Regarding the BOE, expectations are for no change in rates or QE. Developments since February have been broadly constructive but consensus is for the MPC to strike only a cautiously optimistic note at this stage.
Matters that Matter:
• Dovish FED supports risk assets, sends USD lower.
• NZ GDP -1% vs 0.2% expected
• Report: BOJ may expand long-term rates range to 0.25%; will also abolish ETF purchasing target, vow to make purchases only in times of market turmoil – Nikkei
• AU employment change +88.7K vs +30K exp, unemployment rate 5.8% vs expected 6.3%.
• KCNA: US tried to initiate contact multiple times recently via email and telephone messages; North Korea sees no need to respond to US, delaying-the-time trick again; North Korea will disregard US attempts until hostile policies are dropped
Majors 1-Day View:
USDJPY
- Sellers defended prior/current week highs again on Wednesday, and initial gains were given up, prices eventually declining ½ Big Fig. Coupled with extended readings and a bearish divergence in momentum at the daily level, signals are now switching to a bearish stance.
- JPY impacted by speculation BOJ may change policy.
- Offers & large barrier options reported at 110.00
- US yields and risk appetite still broadly supportive.
EURUSD
• Prices posted a bullish engulfing at the daily level on Wednesday, prices interrupting the sequence of lower daily highs. As such, signals have improved and the bias switches to a bullish stance for Thursday.
• USD flows driving EURUSD, EUR weakness still evident on the crosses.
• 1.2000 resistance, 1.1950 support.
AUDUSD
• Prices posted a bullish engulfing on Wednesday, interrupting the sequence of lower weekly highs. As such, signals for Thursday switch to bullish.
• AU employment data strong, RBA appears behind the curve.
• USD soft post-FOMC
GBPUSD
• Prices posted gains of over 1 Big Fig on Wednesday, interrupting the sequence of lower daily highs. However, prices remain contained within the broader 1.3800/1.4000 range ahead of key GBP event risk today, so only a cautiously bullish stance is warranted.
• 1.3800-1.4000 still the range ahead of BOE decision.
FX Relative ATR Grid
Comment: Volatility accelerated on Wednesday after days of contraction. As such, the moves should have legs and in any case, trading conditions are once again favourable.
Relative Strength Grid
Comment: The strongest trends are in JPY (bearish), USD (bearish), CAD (bullish). The strongest momentum was seen yesterday in JPY (bearish), USD (bearish), CHF (bullish).