Euro on roller-coaster ride

Posted by Fullerton Markets on April 25, 2016 at 2:00 PM

ECB kept interest rates unchanged, but the Euro went through a roller-coaster ride.

Mario Draghi did not drop any hint on further easing during his press conference after the interest rates announcement.  He said the current policies needed more time to take effect.  His relative hawkish statement pushed the Euro higher.  However, the Euro shockingly plunged immediately after the press conference ended.  Generally, when central bank is more hawkish, it tends to strengthen the currency.  The drop in Euro is telling us market feels that Europe needs more easing to turn things around; “no hints on further easing from ECB” is seen as a negative move and thus sold off on the Euro.

The most significant move last week happened on Friday when the Japan Yen weakened against all its major counterparts.  USDJPY went above 111 for the first time since early April.  An article on Bloomberg mentioned there is a possibility Bank of Japan (BOJ) may extend the current negative rate to some loans.  BOJ is scheduled to make its monetary policy statement this week.  Market started to cover their long Yen positions or short Yen ahead of any potential announcement.  If the above proves to be pure speculation and BOJ did not announce or highlight possibility of such policy, market may resume their long Yen positions.

Crude Oil has been surprisingly strong even after a disappointing meeting in Doha.  WTI rose above $44 a barrel, the highest since last November.  Market seems to be optimistic on some positive collective decision to be made soon.  We find this optimism “unbelievable”, as there is no concrete evidence or sign pointing to such a possible outcome at this point in time.  If Saudi Arabia back-paddle and express their willingness to accept “production freeze” even without participation from Iran, this will be one positive sign.

The greenback has been sidelined last week, but will return to dominate the market this week.  Given the development around the world and the recent under-performing economic data in US, it is near zero chance of Federal Reserve announcing a rate hike this week.  Market will probably look for some guidance on what to expect in June and when the rate hike is likely to take place.  Market has been underpricing the rate hike, if the upcoming FOMC re-enforced the intention of rate hike this year and increases the chance of rate hike in June, it could provide some short-term boost to the US dollar.

Reserve Bank of New Zealand (RBNZ) has cut rates twice in the last 3 interest rates announcements.  We do not expect any rate cut and their situation does not justify such aggressive easing.  They are likely to state their bias to further easing when necessary, so as to limit further appreciation of the Kiwi dollar.


Our Picks

USDJPY – Slightly Bearish.  USDJPY shot up 250 pips last Friday.  Price may retrace towards 110.50 due to uncertainties leading up to policy announcements by FOMC and BOJ.

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WTI – Bearish on breakout.  The bullish momentum in WTI seems to have weakened.  The price is supported around 43.20.  If price closes below 43, it may fall further.

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AUDUSD – Slightly Bullish.  The upward momentum is still intact, support is around 0.77.

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Top News This Week

US: Federal Funds Rate.  Thursday 28th April, 2am.

We expect figures to remain unchanged at 0.5% (previous figures were 0.5%).

New Zealand: Official Cash Rate.  Thursday 28th April, 5am.

We expect figures to remain unchanged at 2.25% (previous figure was 2.25%).

Canada: GDP m/m.  Friday 29th April, 8.30pm.

We expect figures to come in at 0.5% (previous figure was 0.6%).



Fullerton Markets Research Team

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