FX in a Lull as Thursday Looms

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Market Drivers July 19, 2017
Majors steady ahead of CB meetings
Tankan unchanged
Nikkei 0.10% Dax 0.00%
Oil $46/bbl
Gold $1238/oz.

Europe and Asia:
No Data

North America:
No Data

Ahead of two key central bank meeting tomorrow, currencies spent most of the day in aimless ranges as markets consolidated awaiting the major event risk of the week.

With no major economic events on the docket today, trading is expected to be subdued, although the dollar remains weak with counter trend rallies tepid at best.

Tomorrow the market will hear from both the BOJ and the ECB. PM Abe’s government is growing increasingly frustrated with BOJ Chief Kuroda as 2% inflation target remains elusive. Mr. Kuroda’s term is up in March and there are rumors that PM Abe may not reappoint Mr. Kuroda to a second term.

Some market analysts have suggested that Mr. Kuroda may feel pressured to act, but there is little that BOJ can do having exhausted most QE possibilities including buying equities and targeting the long term JGB rate. Although Japan remains in moderate recovery, global forces remain deflationary, including the recent drop in crude. Therefore it’s difficult to see how Japan can raise its inflation rate in such an environment. If Mr. Kuroda offers nothing new USDJPY could see further weakness post BOJ presser.

As to ECB, Mr. Draghi may be reluctant to signal any further exit signals for now given the already strong reaction in the markets. The EURUSD has already risen five big figures since May and is now at the top of its multi-rang highs. Although economic growth in core countries remains strong with labor markets tightening, demand in the periphery of the EZ is spotty and if Mr. Draghi chooses to stress that point the EURUSD could see a selloff in the wake of the meeting. With market positioning highly skewed to the buy side as CFTC spec longs are at 52-week highs, the prospect of a correction is certainly possible. However, overall the EURUSD still remains in an uptrend so any pullback will likely produce good entry opportunities for longer term bulls.

Boris Schlossberg
Managing Director

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