【This week's outlook 3/20～】 From Rikio Shima's real-world live trading
This Week's Outlook
Publication date: 2017/03/20 19:34
Last week was an event week. Looking at each event,
(1) FOMC. The rate hike occurred as expected. However, the dot plot did not rise as much as the market expected (it shifted up slightly, but there was excessive anticipation of four rate hikes per year in the market, which was not realized).
(2) In the Dutch election, the far-right party did not perform as well as expected, and its impact on the French presidential race was limited.
(3) Bank of England monetary policy meeting. One member supported a rate hike. It was kept on hold by an 8-1 vote, but the presence of a hawkish member was surprising. Although the vote was 8-1 to hold, pound buying resumed. In IMM currency futures positions, pound shorts had increased, so there is expectation of a larger short-covering rally ahead?
(4) G20. With the US stance included, the wording "to counter all forms of protectionism" was removed. However, overall, Mnuchin's impression was soft. Some may expect dollar weakness from the change in the statement, but to me it was softer than expected.
This week, speeches by Fed governors will come in quick succession. At 9:30 PM today, Evans, President of the Chicago Fed (FOX Business News); at 2:10 AM the same Evans will also give a talk. At 7:00 PM on the 21st, Dudley, President of the NY Fed, will participate in a panel discussion with BoE's Carney. At 10:45 PM, Rosengren, President of the Boston Fed (no vote). At 1:00 AM, George, President of the Kansas City Fed (no vote), and at 7:00 AM on the 22nd, Mester, President of the Cleveland Fed (no vote).
However, the focus will be on Yellen's Washington speech on the 23rd at 9:30 PM. It remains to be seen whether she is satisfied with last week's results, and whether a June rate hike is on the table. Currently, CME FedWatch prices in 54.7%, and Bloomberg prices in 56.7%.
Looking at the IMM currency futures market, the increase in USD/JPY longs and the rise in GBP/USD shorts are notable. Regarding GBP/USD, after all, the UK will leave the EU, so economic difficulties are certain, but that is more than two years away, and may be too long to price in. If one enjoys the current pound weakness and stays within the EU, then the UK will see inflation, and economically it won't be bad (since the exit is anticipated, investment from abroad may shrink). Interpreting this is tricky.
Dollar/yen may see slightly more soft momentum due to the G20 statement change, but it seems unlikely that that one sentence change will push the yen much higher. The US Treasury Secretary is also soft.
Last week, Secretary of State Tillerson visited Japan over North Korea issues, and next month President Xi Jinping will visit the United States to play golf with President Trump. As long as North Korea remains a major topic, the US will need China's cooperation, so confrontation is unlikely. The FX report is unlikely to decisively pressure China. Considering this, excessive dollar weakness may be difficult from here.
Some speculate that the killing of Kim Jong-nam and the rising North Korea tensions may involve China (as reported by the FT). No one truly knows, but the outcome is that the US is forced to cooperate with China, and the situation appears to be progressing at China's pace (as it seems).
With the year-end approaching and special flows occurring, this looks like a week lacking a decisive move.
In that case, attention may shift to Oceania currencies by elimination. On Tuesday the 21st, the RBA minutes will be released; on Thursday the 23rd, the RBNZ policy rate decision. As for the RBNZ, no policy change is expected, but several rate hikes are possible this year, so it will attract attention (though currency strength is not welcomed, so there may be cautions about the currency rising).
Currently, I am holding a long EUR/USD, but I don't think it will break the large 1.08 resistance in one move, so when it approaches around 1.0780 I will reduce the position, and I plan to continue buying on dips around 1.0730/40 for some time.
Dollar/yen shows buying pressure below 112.50. If it doesn't fall further, expect the range to continue, and you might consider buying somewhere.
(1) FOMC. The rate hike occurred as expected. However, the dot plot did not rise as much as the market expected (it shifted up slightly, but there was excessive anticipation of four rate hikes per year in the market, which was not realized).
(2) In the Dutch election, the far-right party did not perform as well as expected, and its impact on the French presidential race was limited.
(3) Bank of England monetary policy meeting. One member supported a rate hike. It was kept on hold by an 8-1 vote, but the presence of a hawkish member was surprising. Although the vote was 8-1 to hold, pound buying resumed. In IMM currency futures positions, pound shorts had increased, so there is expectation of a larger short-covering rally ahead?
(4) G20. With the US stance included, the wording "to counter all forms of protectionism" was removed. However, overall, Mnuchin's impression was soft. Some may expect dollar weakness from the change in the statement, but to me it was softer than expected.
This week, speeches by Fed governors will come in quick succession. At 9:30 PM today, Evans, President of the Chicago Fed (FOX Business News); at 2:10 AM the same Evans will also give a talk. At 7:00 PM on the 21st, Dudley, President of the NY Fed, will participate in a panel discussion with BoE's Carney. At 10:45 PM, Rosengren, President of the Boston Fed (no vote). At 1:00 AM, George, President of the Kansas City Fed (no vote), and at 7:00 AM on the 22nd, Mester, President of the Cleveland Fed (no vote).
However, the focus will be on Yellen's Washington speech on the 23rd at 9:30 PM. It remains to be seen whether she is satisfied with last week's results, and whether a June rate hike is on the table. Currently, CME FedWatch prices in 54.7%, and Bloomberg prices in 56.7%.
Looking at the IMM currency futures market, the increase in USD/JPY longs and the rise in GBP/USD shorts are notable. Regarding GBP/USD, after all, the UK will leave the EU, so economic difficulties are certain, but that is more than two years away, and may be too long to price in. If one enjoys the current pound weakness and stays within the EU, then the UK will see inflation, and economically it won't be bad (since the exit is anticipated, investment from abroad may shrink). Interpreting this is tricky.
Dollar/yen may see slightly more soft momentum due to the G20 statement change, but it seems unlikely that that one sentence change will push the yen much higher. The US Treasury Secretary is also soft.
Last week, Secretary of State Tillerson visited Japan over North Korea issues, and next month President Xi Jinping will visit the United States to play golf with President Trump. As long as North Korea remains a major topic, the US will need China's cooperation, so confrontation is unlikely. The FX report is unlikely to decisively pressure China. Considering this, excessive dollar weakness may be difficult from here.
Some speculate that the killing of Kim Jong-nam and the rising North Korea tensions may involve China (as reported by the FT). No one truly knows, but the outcome is that the US is forced to cooperate with China, and the situation appears to be progressing at China's pace (as it seems).
With the year-end approaching and special flows occurring, this looks like a week lacking a decisive move.
In that case, attention may shift to Oceania currencies by elimination. On Tuesday the 21st, the RBA minutes will be released; on Thursday the 23rd, the RBNZ policy rate decision. As for the RBNZ, no policy change is expected, but several rate hikes are possible this year, so it will attract attention (though currency strength is not welcomed, so there may be cautions about the currency rising).
Currently, I am holding a long EUR/USD, but I don't think it will break the large 1.08 resistance in one move, so when it approaches around 1.0780 I will reduce the position, and I plan to continue buying on dips around 1.0730/40 for some time.
Dollar/yen shows buying pressure below 112.50. If it doesn't fall further, expect the range to continue, and you might consider buying somewhere.
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