Posted on: 15 March 2016, by: Pepperstone Support, category: Market Review
Global FX markets are in a holding pattern, awaiting this week’s heavy CB line-up.
In G10, this includes BoJ (Tuesday), FOMC (Wednesday), Norges (Thursday), SNB (Thursday), and the BoE (Thursday).
For the most immediate of these, the BoJ, expectations are for the status quo to be maintained this time, with the policy interest rate to be kept at -0.1% and purchase amounts of JGBs and ETFs to also be maintained. According to a Bloomberg survey (conducted March 8-10), only five of 40 respondents expected additional easing to result from the March 14-15 meeting. We expect the BoJ to ease further in July, immediately after the scheduled Upper House elections.
In addition to the BoJ on Tuesday, minutes from the March RBA meeting will be an interesting as they should further clarify the reasoning behind the hawkishness. In the March meeting the RBA made little changes to their forward guidance despite the rise in external volatility and a weaker investment print.
US retail sales will headline to latter session. This is expected to be weaker largely due to the drop in gasoline we’ve seen in the month.
Market volumes were roughly 25% below the recent average on Monday. There was light thematic demand in USDCAD behind falling oil prices, while volumes in USDZAR were elevated due to comments from Finance Minister Gordhan.
Beyond that, there was USD selling against pairs such as GBPUSD, NZDUSD, and USDJPY.
A few developments were of particular interest:
WTI corrected, trading below $37.00, and captured most of FX’s attention. There was a lot of news (some noise). Iran plans to raise output by about a third to four million barrels a day before it will consider joining any move to rebalance the market, the Iranian Students News Agency reported, citing Oil Minister Bijan Namdar Zanganeh. Opec said "GDP will grow at 3.1% this year, down from the prior forecast of 3.4%." After a meeting with Iran, Russia suggested that Iran might warm up later to the production freeze.
US equities holding up. US equities held up well against the oil decline. The S&P 500 and Dow Average marked the highest closing level in 2016 and topped the 200d MA for the first time in 2016.
April anyone for a Fed hike? Fixed income now shows 1.5bps more of tightening priced-in for the April meeting.
BRL is not doing well for familiar reasons. First, a record turnout in weekend protestors calling for Rousseff s impeachment. Second, her attempt to skirt a Lula prosecution by naming Lula a government minister
RUB rallied into the close following President Putin’s decision to pullout the “main part” of his military in Syria. Players were stopped out in USDRUB on the announcement; spot fell from 70.80 to 69.6880. We also saw fresh interest out of the leveraged community to short the pair.
ZAR note. Comments noted from Finance Minister Pravin Gordhan failed to reassure investors that the Treasury’s independence isn’t under threat amid a policy investigation of the tax department.
Data was not particularly important Monday, but for the record: Eurozone industrial production rebounded strongly in January to 2.1% MoM, stronger than Citi’s forecast at 2.0% and the consensus forecast at 1.7%. This follows strong country-level readings and marks the best print in over three years. The December figure also saw a decent upward revision from -1.0% to -0.5% MoM.
Nikkei news also leaked potential news about the BoJ economic landscape. "The Bank of Japan is looking to downgrade its assessment of a moderate economic recovery for the first time since April 2014, as exports flag amid a slowdown in China and other emerging economies,” reported the paper. “The BoJ is planning to make its first revision in June but could do so in April instead given concerns that negative rates are having a harsher impact on financial institutions than expected."