Markets Neutral on FOMC Minutes – USDJPY Tanks
Most markets were trading sideways ahead of the FOMC minutes yesterday as investors were looking for further clues with regard to the monetary policy in the US, but this revealed nothing new. Emphasis on external risks were mentioned and while some members have been voicing a rate hike in April, this would be a big surprise to the markets. Following the announcement from the FOMC, equity markets erased opening losses and closed the day in positive with the S&P up 0.8% and the Dow took home 0.4%. In currency market, the overall theme was USD-weakness and JPY-strength which has sent USDJPY to lowest levels since October 2014. EURUSD has this morning printed new 2016 highs at 1.1454, but profit taking has sent is back below the 1.14-figure. Crude oil was boosted by lower than expected inventories and is currently flirting with the $38/barrel area. This also led to an appreciation of the Canadian Dollar, despite a disappointment in the Ivey PMI figures. Oil could be well bid in the next weeks on the announcement from OPEC that an agreement on the production levels could be reached on the April 17th meeting despite Iran not participating. In precious metals, gold daily has formed a wedge on a daily chart, meaning that something has got to give shortly.
Overnight, Asian markets kicked off with significant JPY-buying and although the Ministry of Finance has signalled that they will intervene should the JPY appreciate too much, the adding of JPY-longs have not been limited. Not only USDJPY has taken a beating – the JPY is becoming a concern for the export-driven economy as its goods are becoming relatively more expensive towards its trading partners and could hurt growth. We still believe in additional JPY-appreciation, but would recommend taking smaller positions given the risk of intervention.
Today we have a pretty light calendar with US weekly claims and Canadian Building Permits for February on the menu. In addition, we have the ECB minutes from the latest MPC meeting, where additional details on the rate outlook could be disclosed – especially with regard to the change from rate cuts to balance sheet measures.
This evening, Yellen will be in a discussion with former Fed chiefs in New York. We don’t see this a high risk event, but the markets will be on alert, should any new information regarding the monetary policy be disclosed.
Tomorrow there will be focus on the UK as well as Canada. UK is releasing the Industrial Production , Manufacturing Production and Trade Balance figures for February while Canada posts Employment data and Housing Starts for March. We remain bullish on the CAD and will buy on dips, especially against the GBP and USD. USDCAD is showing lower lows and the 50DMA is close to breaking below the 200DMA, showing that the downward acceleration is picking up compared to the longer term and should give room for additional downside.
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