- US markets closed for President’s Day
- European yields in a gridlock for now
- Fasten seatbelts for the BoJ?
- To hike or not to hike: that’s the question
Currencies: Fasten seatbelts for the BoJ?
The USD tried to make a small comeback on Friday. The US data didn’t help much though with the housing data disappointing with much lower than expected housing starts. The USD at first wasn’t really impressed, sticking to the low 1.31’s. Later in the session, the small dollar gains could not be retained for the day, even not at the end of a difficult week for the USD.
This morning, the bad dollar sentiment again was confirmed with aew upmove to the mid 1.31 area. The red alert is still on.
It is obvious the dollar sentiment is shaky, as recent data have showed some doubts about the US economic recovery, with a.o. retail sales, industrial production and the Philly Fed and some dovish comments of Bernanke not appreciated. It means that a rate cut later this year could become the favourite scenario and this is of course a dollar negative development.
The upside risk was highlighted last week with the break out of a medium term sideway path, capped at 1.3050 since January. This installed a sell-USD-intostrength atmosphere in this pair.
Today, trading could be somewhat subdued as the US markets are closed in observance of President’s Day.
This week, the market will be keen to read the US CPI figure (Wednesday) in an otherwise very thin calendar.
USD/JPY moved pretty much sideways last Friday. USD/JPY ticked day lows at the 119 zone, but in the end it was a sideways day at the 119.30 area.
This week, the hottest item is the BoJ decision, which will be released Wednesday morning. The coming days we will see heavy speculation over the BoJ decision. The market is divided almost 50-50. We are inclined towards a rate hike at this stage, as the window of opportunity for a further normalisation of policy is open after the strong GDP number, especially if one still believes in the forward looking nature of the bank. With a Bank so divided, it will nevertheless be a very close call.
A rate hike would be of help to the yen short-term, as the market has not incorporated this and the market is bit unbalanced still at this stage, overly yen negative. IMM data gain showed a widened yen short position in the speculative contracts on the CFTC.
Asian markets this morning (and this week) will also be on low volumes as China, Taiwan, Hong Kong, Singapore and Korea are closed for Lunar New year.
The sterling has been suffering of late, held in a downward spiral of poorer data and decreased BoE rate hike expectations. On Friday, the EUR/GBP pair consolidated at the 0.6730 zone.
This morning, the Rightmove house prices showed a M/M rise of 0.9%, almost double the increase of January, but still there is concern as the Y/Y number is the lowest in 4 months at 11.5%. The Rightmove institute says this may show the Bank has hiked too far. We feel this is a bit exaggerated though, based on this number.
Furthermore, we feel the present anti-sterling sentiment is getting a bit out of hand. Not all is bad. Last week, the BoE inflation report showed that rate hike chances/hopes are not abandoned and the IRS pay data for instance showed mounting upward pressure on wages, a concern for the BoE.
Therefore we feel the pair is still tied down between the 0.6760 and 0.6540 areas.
The present upmove above 0.67 is interesting to look at selling the euro on upticks, as we believe the upswing is overdone by now and the sterling oversold. The 0.6766 area is the cut-off point.
The highlights of this week include the BoE Minutes on Wednesday and the German IFO business sentiment on Friday.
