Saxo Bank: USD, JPY weak ahead of important US event risks
Baku, Azerbaijan, July 5
By Anvar Mammadov - Trend:
The euro has been firmer since story on dissension within the ranks at the European Central Bank on July 4, as apparently some members feel the market is mispricing the likelihood of its first rate hike – currently expected in late 2019, Head of FX Strategy at Saxo Bank John Hardy told Trend on July 5.
“It’s hard to see how this story has any legs, with euro direction for now more likely coming in reaction to developments elsewhere – for example from Japan as discussed below, or more important from the US through tomorrow’s data and tonight’s Federal Open Market Committee minutes,” Hardy said. “Technically, we’re not far from at least a tactical capitulation if the EUR/USD pair closes the week above the 1.1700-25 area.”
“Overnight, the JPY was weaker overnight after a paper delivered by the Bank of Japan’s Masai defended the need to continue easing to bring about 2 percent inflation, a goal that will take some time and now one that faces added risks from global trade policy tensions,” he said.
“USD/JPY has been caught in a nervous range, and traditionally is the most sensitive to shifts in US rates on economic data – we’ll have a better read on tomorrow’s closing levels,” he noted.
The FOMC minutes are unlikely to produce notable shocks, the expert added.
“Those looking for dovish developments are placing most of their hopes on a growing chorus of Fed members fretting about the flattening yield curve, and at the margin any perceived risks to the economy from US trade policies, but we suspect that the Fed is set to continue hiking for now until incoming data points to a need to do otherwise,” he said.
“The market has only priced 65 percent odds of a September hike and less than 50/50 odds that we see two hikes through the December FOMC meeting,” he noted. “The Fed is forecasting three hikes for 2019 while the market is second guessing most of that. The July 17 Powell testimony is our next important Fed event risk.”
Follow the author on Twitter: @Anvar_Mammadov