Buck Starts to Wobble Post FOMC

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Market Drivers Jan 28, 2016

UK GDP in line cable trades above 1.4250
Amari resigns, euro pops above 1.0900
Nikkei -0.7%% Eurostoxx flat%
Oil $33/bbl
Gold $1119/oz

Europe and Asia:
UK GBP 0.5% vs. 0.5% eyed

North America:
USD Durable Goods 08:30

USD Weekly Jobless 08:30

USD Pending Homes 10:00

UK GDP did not miss expectations providing a relief rally for cable while Japanese Economy Minister Amari resigned over corruption charges and euro made a bid to break out above the 1.0900 figure on a haphazard night of trading in FX that saw not strong general trend.

In Japan the markets saw a small flutter of activity after Japanese economy minister Amari resigned over allegations of graft and corruption in party politics. Mr. Amari was the most influential minister to step down since Mr. Abe took office, but the market reaction has been very muted with USD/JPY moving only 10-20 pips on the headline.

Currency traders are far more concerned with the outcome of tonight’s BOJ meeting to see is Governor Kuroda will provide any further monetary stimulus to the current QE program. There is lots of good reason to believe that the BOJ will stand still for now. With USD/JPY comfortably above the 118.00 level and with most Japanese corporates factoring a 115.00 exchange rate for the year the BOJ is likely to remain stationary for now.

in UK the GDP data came in at 0.5% as expected, but given the recent weakness in UK releases and the dour rhetoric from the BOE, the news was seen as a win for the bulls and the pair which has been relentlessly battered for the past month saw a small relief rally through the 1.4300 figure.

Services were the main driver of growth according to ONS rising 0.7% versus 0.6% eyed. Overall UK GDP slowed to 2.2% in 2015 from 2.9% in 2014 but still put in some of the best performance in G-10. Still the deceleration in growth is clearly keeping the BOE on sidelines for now and the rallies in cables remain nothing more than short covering bursts amidst a downtrend.

In North America today the eco calendar carries Durable Goods, pending homes and weekly jobless claims none of which is likely to have much impact on trade. The greenback has been on the back foot since the FOMC statement as traders continue to doubt any action by the Fed in March. Although capital markets appear to have stabilized for now the buck could see further weakness as the day wears proceeds on further short covering in the wake of yesterday’s FOMC. The euro made a faint attempt to clear the 1.0925 level in its first decoupling from risk flows in weeks and any second attempt in US session could push it towards the 1,0950 level as momentum kicks in.

Boris Schlossberg
Managing Director

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