Risk Off on Steady BoJ – Markets Eyeing US Growth and Inflation Figures Later

Monday trading was pretty uninspiring – lack of interesting data and positioning ahead of key monetary releases from the UK (Thurs) and the US (Wed), kept the markets range-trading during the EU and the US sessions. Europe stayed on the bid with the DAX up 1.15% on back of stronger than expected Industrial Production figures for January which outweighed the, for Merkel, disappointing results in the German regional elections. In the US, the S&P closed more or less unchanged and in Asia, markets sold off as the Bank of Japan kept rates unchanged and did not add any stimuli to the Japanese economy. Nikkei fell 1.0% and the Shanghai dropped 1.1%. In FX markets, the PBOC once again weakened the reference rate against the US Dollar to 6.5079 (a change of 0.26%) and there are rumours that China is drafting a framework for implementing a Tobin-tax on currency transactions. The AUD came off from its recent highs and sold off on dovish RBA minutes, currently back below the 0.75-figure. The highly correlated gold prices followed suit and commodities in general sold off with Crude Oil closing in on 36$/barrel. On the monetary side, Egypt decided to abandon its fixed exchange rate, and carried out a devaluation of its currency by 13% against the US Dollar.

This morning, regional CPIs from the Euro zone have been more or less as expected. French Headline CPI for February came out a tad stronger at 0.3% than consensus at 0.2% vs. 0.2% prior. Euro zone employment change for Q4 came out at 0.3% vs. 0.2% expected and 0.3% prior. The EUR has post the ECB session on Thursday been choppy, but short term in a scenario with lower lows. EUR/USD has bumped into the support-zone at 1.11060-80 and just below, we have the 200-day MA (orange) at 1.1045. Later today, at 1430CET,  we have the US Retail Sales, expecting to show a drop of -0.2% vs. a gain of 0.2% in February, which mainly is attributed to a drop in car sales. US PPI will be released at the same time, and consensus points towards a drop in monthly Headline PPI, but an increase in the yearly Core PPI. Should this be the case, then the Fed is indeed in a problem as growth is slowing while pressure on inflation is building. Yellen has been cautious with regards to the future outlook, but given these data points, we would buy on dips in EUR/USD towards the 200-DMA.

20160315EURUSD.Daily

GBP/USD has sold reversed significantly the past two days and is currently testing the 38.2% Fibonacci retracement in the recent wave at 1.4153. Ahead of BoE on Thursday (and keeping the June 23rd referendum in mind), GBP-trading will be choppy and we could also see a reduction of liquidity as we approach. Intra-day, we expect to see bids down towards the 1.41-figure, and stops below.

20160315 GBPUSD.Daily

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