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Asian Session – Markets nervous ahead of Fed meeting and worsening Greek crisis

Asian shares started the session lower hitting three-month lows but managed to mostly reverse earlier losses with the exception of Japan. The Nikkei 225 index was down by 0.19% after disappointing trade figures showing exports rose by only 2.4% in May, against estimates that they would grow by 3%. Investors were generally wary with both the Fed meeting later today and the Greek crisis occupying the markets.

There were no signs that the current impasse between Greece and its creditors is about to change. The Greek Prime Minister Alexis Tsipras on Tuesday accused the IMF of “criminal responsibility” over the situation in Greece and that the lenders are trying to humiliate the country. There were also no hopes of any new proposals being submitted at the Eurogroup meeting on Thursday after the Greek finance minister Yanis Varoufakis said that the Eurogroup is not the right place as they would need to be discussed at lower level first. Accusations were also flying from the EU side with Jean-Claude Juncker saying that the Greek government was misleading the Greek public with the facts.

The escalating situation drove investors to seek safety in German bunds and US treasuries and fears of contagion were awakened with Eurozone periphery bond yields rising significantly. The euro ended the day lower on Tuesday having made same gains earlier on. But the single currency sought to recoup some of its losses against the dollar the in Asian session as it rose to 1.1270 in late Asian trading. It was also higher against the pound at 0.7205.

The dollar was flat ahead of the Fed decision. Mixed housing data on Tuesday did little to alter expectations that interest rates are likely to go up towards the end of the year. The greenback was little changed against the yen early on but moved higher in late Asian trading to 123.67. Better than expected current account data for the first quarter was unable to lend support to the New Zealand dollar as it continued to slip lower to 0.6949 against the greenback. The aussie was also weak, falling to 0.7707 against the dollar. Meanwhile, the pound was flat against the dollar around 1.5639 ahead of today’s unemployment and tomorrow’s retail sales data.

The main event coming up later today that will be on everyone’s watchlist is the Fed’s open market committee meeting. The FOMC statement will be closely scrutinized for any changes to the Fed’s outlook on the strength of US economic growth and inflation expectations as this will determine the timing of when interest rates will go up. The Fed will also be publishing its economic projections at the same time as the statement, followed by a press conference.

Also of importance will be the UK’s unemployment data, a key determinant in the Bank of England’s inflation outlook. UK unemployment is expected to stay unchanged in April but average earnings are expected to pick up. There is little data coming out of the Eurozone apart from the final CPI figures for May, which aren’t expected to produce any surprises but statements and releases from the ECB Governing Council’s non-monetary policy meeting may bring some market reaction.

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