Big moves for the EUR today?
By Vincent Mivelaz
Get ready for a heavy schedule of Eurozone economic data today. The big question is whether this will prompt significant moves in the single currency or not. According to expectations, June employment rates should continue to beat historical records, while inflation and 2Q GDP q/q data are estimated to remain flat. However, annualized 2Q GDP is expected to have declined (estimates: 2.20%; prior: 2.50%). With the meeting between European Commission President Jean-Claude Juncker and US President Donald Trump in Washington last Wednesday ending on a positive note, we expect the EUR/USD to remain stable. But a larger-than-expected decline in GDP growth (though already priced in following last Thursday's ECB meeting) or inflation, could put additional pressure on the EUR, while the opposite also applies.
Trading sideways since 21 May, EUR/USD is trading within a flat trend channel between 1.18 (07/06/2018 high) and 1.1540 (29/05/2018 low). The pair is expected to head along 1.1745 in the short-term.
BoJ keeps rates unchanged but allows fluctuation on the yield curve
By Vincent Mivelaz
During today's monetary policy meeting, the Bank of Japan (BoJ) confirmed it will maintain its short-term policy interest rate at -0.10%, unchanged since 29 January 2016, "for an extended period of time." The BoJ also confirmed investors' expectations by announcing a change to its yield curve strategy, allowing for more policy flexibility.
Indeed, the BoJ confirmed its willingness to maintain the 10-year JGB around 0%, but says that it could fluctuate (upward or downward) in that range. This is good news for the banking sector, for which the flat yield curve squeezed lending profits margins previously. Since the BoJ had already prevented any rise in the 10-year yield above 0% with the use of unlimited bond purchases amidst its prior curve strategy, there is no doubt that it will face stronger headwinds when trying to curb yield rise. The end effect should be a stronger yen.
Fed FOMC meeting expected to remain muted on Wednesday
By Vincent Mivelaz
Based on the Fed's minutes and Chairman Jerome Powell's testimony to the Senate, we expect the Federal Reserve to maintain a positive economic outlook for the US economy. But the ongoing trade war concerns that the Trump administration is triggering remain a major risk for the central bank, whose change of sentiment could lead the USD downward. For now, Powell considers the current risks to the economy to be balanced and no change in current policy rate is expected. This should not happen until the next monetary policy meeting on 26 September.