Data/Event Risks
- FX: For all, there is strong risk of more confusing and contradictory remarks on FX as G20 officials (finance minsters and central bank heads) meet in Russia. The currency judgement in FX is that G7 leaders are certainly not all of one voice. This creates the risk for volatility going into the end of the week.
- EUR: The European Central Bank publishes its monthly report, but this is a low risk event. Note that EURUSD sees strong support at 1.3275, currently both 50day MA and trendline support. Eurozone GDP also released, set to decline by around 0.5% in the wake of the weaker German GDP numbers released this morning.
Idea of the Day
Leaders of the G20 nations meet today and tomorrow and that it likely to mean more comments with the potential to move markets. The statement from the G7 earlier in the week, and the subsequent comments from certain sources, did little to give markets the confidence that politicians are of the same view. But this should not be a surprise, as there are always winners and losers in currency wars. The euro was doing its best to push higher yesterday, because it remains the most likely beneficiary of any fresh emergence of yen weakness and silence from officials over the next two days would likely help this view re-emerge.
Latest FX News
- JPY: Weaker than expected GDP data, output declining 0.1% in Q4. No surprises after the latest Bank of Japan meeting, especially given the impending change of leadership next month. The yen was steady to slightly softer vs. the USD around 93.70 at the start of the European session.
- EUR: Weaker early on as a result of weaker GDP data from Germany, down 0.6% QoQ. The single currency was staging a fight-back on Wednesday following the G7 induced volatility of earlier in the week, briefly breaking above 1.35, but struggled thereafter. Still seen as the main beneficiary of yen weakness when it returns.
- GBP: Sterling was not a fan of the latest Bank of England inflation report. The upward revision to the Bank’s 2Y inflation projection was the 3rd biggest of the past 10 years (FxPro estimate from chart). But weak growth means that rate increases are not on the agenda. High inflation, low interest rates and no growth is not a great backdrop for any currency.
- AUD: The bounce just above the 50% Fibonacci level (1.0219) on AUDUSD seen Tue was followed by move above 200d MA (currently 1.0315), so once the again the Aussie bears have gone back into the woods.
Further reading: Forex Analysis: USD/JPY Consolidates within Steep and Sustained Bullish Trend
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