Busy week ahead – Central Banks, GDPs in focus
Despite an upbeat close in the US equity markets on Friday, Asian equities have softened going into this week on back of a drop in oil, which seems to be the main driver for risk taking at the moment. In currencies, the weakened considerably last week on speculation that the Bank of Japan would introduce negative rates in a new loan program, but we still see considerable risk for additional appreciation of the JPY, considering the risks in the Japanese economy along with the durability of Abenomics not proving to have the required long term effects. In fixed income, the upward pressure on rates is still the main theme while in precious metals, spot gold is still rangy with the daily Wedge getting tighter.
Today, the market activity is expected to be relatively quiet. German IFO figures came out a tad lover than market expectations but is still showing decent figures. There has been no real impact in EUR-pairs and EURUSD is in recovery mode after printing fresh April lows this morning at 1.1217.
In the US session, New Home Sales for March is expected to increase 1.0% from 2.0% in February.
Overall, we expect markets hold back in the beginning of the week due to the heavy central bank and macro releases later in the week. On Wednesday, the FOMC will announce interest rates as well as the forward guidance. We expect that the meeting once again could act as a catalyst for more USD-weakness as the global scenario has not improved considerably and investors have scaled back on USD-longs on back of a reduced likelihood of an interest hike. The Reserve Bank of New Zealand will also announce rates, where expectations are for an unchanged rate at 2.25%.
On Thursday, the Bank of Japan will be release their monetary policy statement. Unchanged interest rates are also expected at -0.1%, but the point of focus will be whether or not the BoJ decide to act and provide additional stimulus to the economy. Most market participants are expecting this to happen in June, but recent polls have shown that the markets have become more biased for the BoJ to act this week.
The Central Bank of Brazil also release rates on Thursday, where consensus is for an unchanged rate at 14.25%. On the macro-front, we have GDP releases from Canada (Fri), Euro zone (Fri), UK (Wed) and the US (Thu) and CPI releases from Australia (Wed), Japan (Thu) and the Euro Zone (Fri). This means that we can expect volatility to increase considerably from Wednesday and going forward.
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