Data/Event Risks
FX: The data flow is very quiet today at the start of the week. This should keep event risk low. Focus remains on stock markets and the buoyancy being seen, but many FX pairs are near key levels, which is where main volatility risk lies for today.
Idea of the Day
The reaction seen to the US employment report on Friday was very telling. It’s more the exception than the rule that the initial reaction after the data is sustained. What was interesting was that the better than expected data strengthened the dollar and that this move held in place for the remainder of the session.
As we were discussing last week, the dynamics of the FX markets have been changing for some time and the fact that the dollar appreciated on a stronger than expected jobs report further confirms this, pushing the ‘risk-on/risk-off’ dynamic further into the background. Even though today is a quiet day for data, many FX pairs remain at key levels, the yen just shy of new highs, GBPUSD having sustained the move below 1.50 and EURUSD still troubled by the 1.30 level.
Latest FX News
- EUR: Focus turns to Cyprus and the structuring of the likely bailout as EU leaders meet later this week. What’s notable for the euro is that the recovery in peripheral bond yields has not offered much support to the single currency, with the stronger dollar undermining the scope for recovery in EURUSD.
- JPY: Further comments from BoJ governor nominee Kuroda overnight largely repeated what was heard last week. He again underlined his desire to do whatever it takes to end deflation. Such comments helped to keep the yen soft, but there is definitely a sense of a yen less sensitive to talk from officials. USDJPY is sitting just above 96.00 at start of European session.
- GBP: One of the weaker performers on the majors since the release of US jobs data on Friday. GBPUSD is holding below the 1.50 level. Focus is turning towards the budget statement Wednesday of next week, both from a fiscal point of view and also monetary policy, given that MPC’s inflation target is usually reviewed at this time.
- AUD: There were some wobbles early in the Asia session on the back of weaker data from China over the weekend, but AUDUSD recovered modestly to around the 1.0220 level.
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