No Faith in FED – USDJPY Drops Below 110.00

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Market Drivers June 12, 2017
Macron win the 1st round
USDJPY dips below 110.00
Nikkei -0.52% Dax -0.65%
Oil $46/bbl
Gold $1269/oz.

Europe and Asia:
No Data

North America:
No Data

It’s been a quiet start to the week after last week’s volatile events. With Australia and UK on holiday’s and no major data anywhere on the G-7 calendar, there was little fresh news to move FX.

Nevertheless, USDJPY steadily drifted lower breaking below the key 110.0 despite slightly better US yields as risk-off flows in equities weighed on the pair. This is FOMC week for the dollar and the greenback will be the primary focus of trade as we move closed to Wednesday when the Fed is expected to raise rates by another 25bp to 1.50%.

Despite the generally hawkish posture of US monetary officials US data has been woefully disappointing and the much vaunted rebound in second half of 2017 is nowhere to be seen as growth continues to track at about 2% rate. The end result is that market expectations have gradually declined from 4 rates hikes this year to 3 to now only 2. The Fed funds futures project only a 42% chance of any additional rate hikes beyond the June hike expected this week.

Unless the Fed provides a much more hawkish than expected narrative to the second half of the year, it’s difficult to see how the buck can rally this week as it remains contained in the 109.00-111.00 range.

Elsewhere the pound came under fresh selling pressure in mid morning London dealing dipping below the 1.2700 figure after staging a bit of a deadcat bounce in Asia overnight. The UK election has brought nothing but uncertainty to the Brexit process as PM May is now a considerably weakened position as she cobbles together her plurality government. If UK data this week proves disappointing it will only exacerbate market sentiment and could push cable towards the 1.2500 figure as the week proceeds.

Boris Schlossberg
Managing Director

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