USD firmer after FOMC minutes, BOJ announcement due

Markets experienced limited volatility as participants digested the FOMC minutes with mixed interpretation. Minutes from the June 19-20 FOMC meeting showed that a few members said that more stimulus would probably be needed while several saw action needed if economy worsens. While it appears that the hawks may be softening their stance in light of recent data deterioration, it is also apparent that the economy must falter further in order for another round of QE. The dollar was given a boost following the minutes and treasury yields are mostly higher. The dollar index1 rose to new 2-year highs briefly before settling back to current levels under the 83.50 resistance zone.

Against the G10 currencies, the buck is only weaker against the commodity currencies (AUD, CAD, NZD). Crude oil1 is significantly higher on the day and up +2.68% at time of writing after weekly inventory data showed a sharper than expected decline of -4.7M barrels (cons. -1.4M). Equities finished the day with a negative tone with the DJIA1 closing lower by -0.39% while the S&P 5001 was only marginally lower.

U.S. economic data was largely in line with expectations with the May trade deficit narrowing to -$48.7B from the prior -$50.6B due to declining oil prices while wholesale inventories rose by +0.3% in May.

In Europe, officials indicated that Greece will not make its €3.2B asset sale target for this year and Finland’s finance minister Urpilainen noted the challenge of the time table in Spain collateral talks saying that there is “no light at the end of the tunnel”. EU sovereign yield spreads were mixed and EUR/USD fell to new 2-year lows above the 1.22 figure with the path of least resistance remaining to the downside.

The Bank of Japan (BOJ) will conclude its 2-day policy meeting tonight and announce its decision on monetary policy. There are expectations for an increase in asset purchases by ¥10T to bring the total size to ¥80T. In our view, if the Bank announce such measures the impact is likely to be minimal. Additional rounds of easing by central banks have a diminishing effect and in Japan, specifically, we are skeptical that the bank can find enough short term bonds to buy as the Bank has failed to meet its target bond buys on recent occasions. This would suggest that the BOJ would need to extend the maturity of its purchases, however the Japanese government bond yield curve is already quite flat (2-year yields are at nearly 10bps while 10-year yields are currently around 79bps). Therefore this is likely to have a marginal impact as well and we favor fading yen weakness. With the Japanese economy facing deflation, and prices falling further, the Bank may need to get more creative in its response.

Also due out of the Asia/Pacific session is New Zealand’s business PMI and food prices for June. Japan’s weekly securities investment figures are set for release and Australia sees its June employment report which is expected to show the unemployment rate tick higher to 5.2% from 5.1%.

Источник: Forex.com

11.07.2012