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ForexLive European FX news wrap: Currencies muted awaiting major central bank decisions 0 (0)

Headlines:

Markets:

  • NZD leads, JPY lags on the day
  • European equities higher; S&P 500 futures up 0.7%
  • US 10-year yields down 0.4 bps to 4.300%
  • Gold up 0.2% to $2,160.95
  • WTI crude up 0.5% to $80.98
  • Bitcoin up 0.5% to $68,237

It was a quiet session as market tones were mostly muted, awaiting key central bank decisions later this week.

Major currencies did not get up to much whatsoever, with the dollar holding steady amid more muted action. The ranges for the day are leaving a lot to be desired, so there isn’t much to really scrutinise in the FX space.

EUR/USD is holding near 1.0900 with large option expiries in play at the figure level while USD/JPY is flat just above the 149.00 mark, not finding much appetite before the BOJ tomorrow.

The lack of meaningful action in Treasuries is also keeping currencies less enthused so far on the day.

The only notable mover is in equities as tech shares are soaring ahead of the US open later. Nvidia is holding its annual GTC Conference today and that will be one to watch. S&P 500 futures are now up 0.7% as investors are putting behind last week’s drop quite quickly.

But for the rest of the week, it’s all about the major central bank decisions to set the mood in broader markets.

This article was written by Justin Low at www.forexlive.com.

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US futures move higher as tech leads the way 0 (0)

S&P 500 futures are now up 0.5% on the day with Nasdaq futures seen up 1.0% ahead of US trading later. Tech shares are the ones on the move as Dow futures are still seen rather flattish at the moment. Meanwhile, European indices are still just slightly higher so far on the session.

Nvidia remains the focus as it is set to open above $900 as indicated in pre-market trading. The company will be hosting its first in-person conference this week since the pandemic. And plenty of watchful eyes will be on that.

The move here is the standout as there hasn’t been much else happening during the session. Major currencies remain largely muted and little changed while Treasury yields are also not giving much to work with for now.

This article was written by Justin Low at www.forexlive.com.

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Dow Jones Technical Analysis 0 (0)

Last week, the Dow Jones couldn’t extend the rally
into a new all-time high as the stronger than expected inflation data and the
quick rise in Treasury yields weighed on the stock market. There’s been also
some profit-taking as we approach the FOMC rate decision on Wednesday with the
risk of a hawkish surprise. Overall, the market is likely to remain supported
as long as the Fed does not restart to hike rates, or the economy does not
falter.

Dow Jones Technical
Analysis – Daily Timeframe

On the daily chart, we can see that the Dow Jones broke
out of the rising wedge recently
and started to consolidate just beneath the bottom trendline. The
breakout opened the door for a bigger correction into the 38043 level, but the
strong battle between buyers and sellers led to a rangebound price action ahead
of the FOMC rate decision. There are no catalysts now trading into the event,
so the technicals will likely lead the price action.

Dow Jones Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that
the price managed to break above the downward trendline but got smacked back
down following some strong US data that raised the risk of a hawkish Fed on Wednesday.
We now have a range between the 38461 support and
the 39119 resistance, so the market participants will likely “play the range”
by buying at support and selling at resistance until we get a breakout.

Dow Jones Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can see more
closely the recent rangebound price action. If the dip-buyers come into the
market strongly, then a break above the recent swing high at 38930 could lead
to a break above the 39119 resistance, although it might be better to wait for
the FOMC before taking new trades.

Upcoming Events

This week we have the FOMC rate decision on Wednesday
where the Fed is expected to keep rates unchanged. The market will be on the
lookout for hawkish surprises though following the stronger than expected
inflation data. On Thursday, we conclude with the latest US PMIs and Jobless
Claims figures.

This article was written by FL Contributors at www.forexlive.com.

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USD/JPY needs more than just the BOJ to justify compelling downside momentum 0 (0)

After having dropped from 150.00 to 146.00 levels in early March, it looked like the BOJ finally got the ball rolling in USD/JPY. But amid a combination of more cautious trades and higher Treasury yields, the pair failed to muster much strength in chasing any major downside momentum. Today, the pair is trading at 149.20 now as we look towards the BOJ policy decision tomorrow. So, what’s next?

The writing is in the sand already that the BOJ is set to put an end to negative rates tomorrow. Adding to that, it is likely that they will also scrap its yield curve control (YCC) policy. However, they are still to retain bond buying operations and one can expect the statement to also lean more dovishly. That considering the central bank will not want to spook investors with a drastic and major change of narrative at the central bank.

In short, the moves tomorrow can be seen as baby steps for the BOJ to start moving in the other direction. But are these small steps enough to trigger a much stronger rally in the yen currency? There is potential but personally, I’d like to see other market forces corroborate to this story as well.

The thing about USD/JPY shorts or any other shorts in yen pairs is that they are producing a negative carry. And right now, 10-year Treasury yields are still up by some 45 bps so far this year, sitting around 4.30% presently. That’s not quite something that will get investors to thinking that they should move their money away from the dollar so quickly.

And if the BOJ is taking just small and prolonged measures in tightening policy, it will take some time for rate differentials to narrow. That is not something that will benefit the yen all too much.

For the yen to crack the code, I reckon it also needs much softer US economic data to follow. That will likely prompt the Fed to cut sooner and that will also show up in the rates market. So, unless we do see Treasury yields start to drop more meaningfully, it may be tough to argue for any steep downside in USD/JPY even as the BOJ looks to act tomorrow.

That being said, the yen does have some good news to work with as we approach the latter stages of March. This is the time when we do see a repatriation of funds back to Japan as the fiscal year-end looks to wrap up. Most of the time, the flows are staggered but it could be a supportive factor for the currency in the final two weeks.

As for the technical perspective, there is also plenty of work for USD/JPY sellers to do. The confluence of the 100 and 200-hour moving averages at 148.01-16 currently is the first area that needs to be broken. That will then establish a more bearish near-term bias.

Following which, the 100-day moving average at 147.59 currently is the next key level to get past. Only then can we start talking about a chase towards its 200-day moving average at around 146.41 at the moment.

This article was written by Justin Low at www.forexlive.com.

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Eurozone January trade balance €11.4 billion vs €16.8 billion prior 0 (0)

The euro area trade surplus narrowed in January on a non-seasonally adjusted basis. But after accounting for seasonal adjustments, the total trade surplus grew from €14.3 billion in December to €28.1 billion in January. This comes as exports grew by 2.1% on the month while imports fell by 4.0% on the month.

This article was written by Justin Low at www.forexlive.com.

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