Forex Afternoon Wrap 2015-03-18

Key Notes:

• Australia MI leading index 0.3% vs. 0.1% previously
• Japan trade balance -0.64 trillion vs. -1.21trillion
• UK average earnings index 1.8% vs. 2.2%; unemployment rate 5.7% vs. 5.6%; claimant count change -31k vs. -30.6k
• BoE MPC minutes
• Switzerland ZEW economic expectations -37.9
• Canada wholesale sales m/m -3.1% vs. -0.7%

Later

• US Crude oil inventories report
• FOMC Statement and press conference
• New Zealand GDP

Markets opened on a cautious note today ahead of the FOMC event later tonight. The Australian and Kiwi dollars were trading within a range in an obvious ‘wait and watch’ mode before the Fed’s statement. The Kiwi dollar was, in particular, strong against weaker currencies including the Australian dollar and the British sterling, despite a decline of -8.8% in the Global dairy trade index released yesterday. The next key risk to the kiwi comes from tonight’s GDP data which is expected to show the New Zealand economy expanded at a pace of 0.8% in the last quarter, down from 1% previously.

The Japanese Yen was a bit firm but largely unchanged against the Greenback while stronger against weaker currencies such as the British Sterling. There were no major market events from the Asian session today.

The European markets were also cautious with the UK jobs report being the center of attention.

The BoE minutes revealed that policy makers were largely concerned about the strength of the British Sterling which they believe could put more pressure on inflation, already down on account of falling energy prices. The views were echoed by BoE Governor, Mark Carney last week at an event which saw a sharp selloff in the British Pound, especially against the US Dollar.

The BoE’s minutes along with a soft employment reading saw the Pound weaken considerably today. While unemployment rate remained steady at 5.7% missing expectations of 5.6%, the average earnings fell to 1.8%, below market estimates of 2.2% and down from 2.1% previously. The only silver lining for the UK jobs data was the continued improvement in the claimant count change which decreased by -31k beating estimates. However, the Pound was overwhelmed by the dovish BoE and the soft jobs report that the currency declined to 1.464, taking it to the lows of May/June 2010.

The Euro continued its short squeeze and looks to be moving into a tighter range, trading between 1.06344 and 1.0589 levels with a possible breakout imminent. Across its peers, the Euro was, however, a bit stronger, gaining modestly against the Yen and the Canadian Dollar.

The US trading session saw the Canada wholesale sales declining -3.1%, down from an upward revised 2.8% previously but missing estimates of a -0.7% decline. The Canadian dollar continued to remain weak across the board.

Heading into the US trading session, the markets could likely head into a range mode across the board. The general consensus is that the Fed is expected to remove the word ‘patience’ from its statement which would put a June rate hike on the table. However, the Federal Reserve will also release its economic projections which will complicate matters even more. All in all, today’s FOMC will clearly be a big event to watch with some volatility picking up across the bonds, currency, and equity markets.