Four central banks announced their monetary policies last week.
The biggest disappointment came from Federal Reserve (Fed). Janet Yellen failed to inject life into the greenback, even though the “dot-plot*” shows 2 rate hikes by the end of 2016. Janet’s focus on the concern of global growth and potential impact to the US economy sent the EURUSD up 150 pips in 2 hours. Although the near term outlook for the dollar is weak, but once the reality of the next rate hike creeps closer, we expect the dollar bull to return.
* “dot-plot” – The median of Fed officials’ projections.
Bank of Japan (BOJ) maintained their monetary policy and kept their benchmark rate unchanged as expected. The weakness of dollar caused USDJPY to fall below 111, triggered a brief intervention by BOJ, pushing up USDJPY by 100 pips in a matter of minutes. This looked like a “warning shot” and the exchange rate remains at BOJ’s “discomfort zone”. Further strengthening of the yen will add pressure to the frail economy. Intervention may not be a long-term solution, what will BOJ do next? Further rate cut or more stimulus?
Swiss National Bank (SNB) put a hold on their monetary policy. The euro remained stable against the Swiss franc after the latest round of ECB easing, provides a relief to SNB. However, they may intervene if their currency strengthens.
The most optimistic statement came from Bank of England (BOE). Policy makers’ positive tone stamped out speculation on possible rate cut. The earlier part of last week saw the pound plunged close to 400 pips after fresh poll showing the risk of “Brexit”. Towards the later of the week, the sterling came back more than 450 pips after Fed’s disappointment and BOE’s optimism. Besides impact from economic data and policy makers, the other key driving force of the sterling should come from the on-going speculations on the outcome of June’s referendum. It’s “Brexit” vs “Bremain”.
After a total of 7 central banks policies announcements in 2 weeks, the news calendar for this week seems relatively calm. The key news to watch out for is the outcome of the meeting by the oil producing countries. WTI has shot past $42 per barrel, the highest in 2016. The outcome will decide if the gain is justified. We expect the outcome to be slightly positive, but we do not foresee very aggressive actions or decisions as the recent recovery in oil prices have eased the pressure for it.
Our Picks
WTI Oil – Slightly bullish. The uptrend is intact; we expect the support level of $40 a barrel to hold.
USDJPY – Slightly bullish. BOJ has intervened twice this year when price drops below the 111 level. We believe BOJ is likely to hold the 110-111 level.
GBPUSD – Slightly bearish. “Brexit” is likely to come back to haunt the sterling since the game is pretty much open until June. Price has formed a double top formation with the neckline around 1.4415.
Top News This Week
UK: CPI y/y. Tuesday 22nd March, 5.30pm.
We expect figures to come in around 0.4% (previous figure was 0.3%).
Europe: German ZEW Economic Sentiment. Tuesday 22nd March, 6pm.
We expect figures to come in around 5.8 (previous figure was 1.0).
US: Unemployment Claims. Thursday 24th March, 8.30pm.
We expect figures to come in around 260K (previous figure was 265K).
Fullerton Markets Research Team
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