FX market outlook

FX market outlook

Posted on Thursday, July 20 2017 at 8:41 am GMT+0000
Yen weakens following BoJ meeting; aussie gains on healthy job market

Forex markets experienced more volatility today as it was busier one compared to others this week. The yen weakened against the dollar following the release of the Bank of Japan monetary policy report. The aussie had an initial boost against the greenback after employment data had been released, however it fell soon after. The euro was slightly up ahead of the European Central Bank meeting later in the day.

The BoJ kept monetary policy steady, a report showed today. While that was widely expected, the bank surprised the markets by delaying again the time-frame for reaching its inflation target, now expected at some point in fiscal 2019 instead of fiscal 2018. This is a sign the BoJ’s accommodative monetary policy will continue for longer, contrasting its peers’ thinking in the developed world. The BoJ cut its inflation forecast for the current fiscal year to 1.1% from 1.4% projected three months ago. The news came after the yen had already been pressured earlier in the session on the miss in trade balance data for June. While the trade balance came in short of expectations (440 billion yen versus the expected 485 billion yen), exports continue to expand above projections. Dollar/yen rose slightly to trade just above the 112 level as the Asian session was about to close.

The Australian dollar reached more than a two-year high versus the greenback as news about the healthy jobs market came out. Even though the change in employment, at 14K, came in 1,000 short of expectations, the encouraging sign in Australia’s labor market was the rebound in full-time employment in June that reached 62K. Unemployment in Australia was steady at 5.6%. Aussie/dollar rose to 0.7987 following the news, but retraced the gains later in the session to last trade at 0.7924.

The euro was slightly up against the US dollar in the pre-European session. The eurozone currency got a boost from Germany’s upbeat producer price figures for June. Annually, PPI rose 2.4% last month, above the forecasted 2.3% increase. While economists were expecting monthly PPI to decline by 0.1%, the index stagnated relative to the prior month when a decline of 0.2% had been recorded. Euro/dollar rose following the release and was last trading at 1.1518.

Traders are eagerly looking forward to the ECB meeting later today. While no immediate change in monetary policy is expected today, investors are hoping to gauge the ECB outlook for the autumn and steps the bank plans to take.

Sterling continued falling for the fourth consecutive day, though still trading above the $1.30 level. The pound may react following the release of the UK retail sales at 11.30 GMT.

Gold was under pressure overnight as the dollar gained ground against the yen. The precious metal was last trading at $1,239.01 an ounce.

Oil prices retraced some of yesterday’s gains with both Brent and WTI falling around 0.20% today. The EIA report yesterday lifted prices as it showed a decline in crude oil inventories in the US for the week ending July 14. WTI was last trading at $47.03 a barrel and Brent was at $49.60 a barrel.