Talking points:
- Investors prefer not to take risks before the decision of the Bank of Japan, fix profits;
- Democrats and Republicans can not agree on financing the government, investors are slow to sell the dollar - because the consequences for the economy are not obvious. The Senate will vote on Monday;
- OPEC excites the market with a statement that production quotas may go beyond 2018.
The Japanese yen is heading to complete bullish advance before the meeting of the Bank of Japan on Tuesday as it is expected that the Japanese Central Bank will follow the example of its colleagues and announce the beginning of winding down its stimulus measures. The basis for such hopes was the recent unexpected move by the Central Bank to reduce the volume of JGB purchases in the market by 5%, which then returned to normal. This was in contrast to the previous, resolutely dovish rhetoric of the officials who pointed out the strong dependence of the recent economic recovery on soft monetary policy. Arguments of Haruhiko Kuroda sound very reasonable, given that core inflation has not reached half of the target level of 2% and economic growth is based on the export sector, which viability is strongly dependent on the ongoing efforts of the Central Bank to devalue the yen. The weak national currency is also a source of inflationary pressure, which is veiled in the final figures on inflation, which until recently has been showing positive dynamics.
Based on this reasoning, it is difficult to imagine what locomotive of economic recovery will be invented by the Japanese Central Bank in the absence of a large-scale QE. There is an excellent chance for short positions on the yen, as Kuroda is likely to cool down the fervor of investors, pointing out that the Central Bank's restraining policy is only a mirage at least several more quarters until the inflation of other leading economies will not acquire clear features.
The short-term target for the USDJPY level is 111.50-112.50 on Tuesday. Especially at stake is support at 110.00, which is very likely to withstand pressure.
The struggle of Democrats and Republicans left the government without money, but the dollar does not get involved in a political game, trying to avoid speculation. The last time the question of financing the government reached a critical point in 2013, during the presidency of Barack Obama. Then the state machine was idle for 16 days. It is important to understand that a fortnight of vacations did not affect the economy in any way. You can rely on a historical example and expect this time the same. Accordingly, investors dumped these news and are completely absorbed in the struggle of expectations for tightening the ECB and the Fed. Today, the Senate will vote on the issue of financing the government and considering the stay of the dollar at the bottom, as well as an empty economic calendar, we can expect at least some kind of market response to the vote. There is a perfect handle to risk and put on a short-term rise of the dollar, as the bears are still silent. In addition, Thursday is the day of the ECB and it is dumb to expect further growth of the euro, but rather the closure of positions due to the looming uncertainty regarding the decision.
The EURUSD target is a rebound to 1.20, where further medium-term goals for the pair will be determined.
The market had a completely unhappy reception of news from the Kingdom of Saudi Arabia. The prices ignored the statement of Saudi Arabia's oil minister Al-Falih that there is a possibility of an extension of OPEC arrangements after 2018. Rather, the comments became a hint that the market will not soon get rid of overabundance due to the growth in production in the US. Prices have changed slightly, frozen after correction from the level of $ 70 per barrel. Obviously, short-term factors have been up and the market is waiting for EIA data before deciding on further direction.
Arthur Idiatulin
- Investors prefer not to take risks before the decision of the Bank of Japan, fix profits;
- Democrats and Republicans can not agree on financing the government, investors are slow to sell the dollar - because the consequences for the economy are not obvious. The Senate will vote on Monday;
- OPEC excites the market with a statement that production quotas may go beyond 2018.
The Japanese yen is heading to complete bullish advance before the meeting of the Bank of Japan on Tuesday as it is expected that the Japanese Central Bank will follow the example of its colleagues and announce the beginning of winding down its stimulus measures. The basis for such hopes was the recent unexpected move by the Central Bank to reduce the volume of JGB purchases in the market by 5%, which then returned to normal. This was in contrast to the previous, resolutely dovish rhetoric of the officials who pointed out the strong dependence of the recent economic recovery on soft monetary policy. Arguments of Haruhiko Kuroda sound very reasonable, given that core inflation has not reached half of the target level of 2% and economic growth is based on the export sector, which viability is strongly dependent on the ongoing efforts of the Central Bank to devalue the yen. The weak national currency is also a source of inflationary pressure, which is veiled in the final figures on inflation, which until recently has been showing positive dynamics.
Based on this reasoning, it is difficult to imagine what locomotive of economic recovery will be invented by the Japanese Central Bank in the absence of a large-scale QE. There is an excellent chance for short positions on the yen, as Kuroda is likely to cool down the fervor of investors, pointing out that the Central Bank's restraining policy is only a mirage at least several more quarters until the inflation of other leading economies will not acquire clear features.
The short-term target for the USDJPY level is 111.50-112.50 on Tuesday. Especially at stake is support at 110.00, which is very likely to withstand pressure.
The struggle of Democrats and Republicans left the government without money, but the dollar does not get involved in a political game, trying to avoid speculation. The last time the question of financing the government reached a critical point in 2013, during the presidency of Barack Obama. Then the state machine was idle for 16 days. It is important to understand that a fortnight of vacations did not affect the economy in any way. You can rely on a historical example and expect this time the same. Accordingly, investors dumped these news and are completely absorbed in the struggle of expectations for tightening the ECB and the Fed. Today, the Senate will vote on the issue of financing the government and considering the stay of the dollar at the bottom, as well as an empty economic calendar, we can expect at least some kind of market response to the vote. There is a perfect handle to risk and put on a short-term rise of the dollar, as the bears are still silent. In addition, Thursday is the day of the ECB and it is dumb to expect further growth of the euro, but rather the closure of positions due to the looming uncertainty regarding the decision.
The EURUSD target is a rebound to 1.20, where further medium-term goals for the pair will be determined.
The market had a completely unhappy reception of news from the Kingdom of Saudi Arabia. The prices ignored the statement of Saudi Arabia's oil minister Al-Falih that there is a possibility of an extension of OPEC arrangements after 2018. Rather, the comments became a hint that the market will not soon get rid of overabundance due to the growth in production in the US. Prices have changed slightly, frozen after correction from the level of $ 70 per barrel. Obviously, short-term factors have been up and the market is waiting for EIA data before deciding on further direction.
Arthur Idiatulin
This analysis is provided as general market commentary and does not constitute investment advice. Past performance is not indicative of future results
