Daily Roundup – Markets review
There has been little change in general themes over the last 24 hours, with the Aussie Dollar continuing to track lower against the greenback and Euro area currencies appearing largely rangebound. The Euro and Pound could however both prove to be rather volatile in the hours ahead, with key statements due from both the Bank of England and European Central Bank.
In London, we’ll hear from the first Monetary Policy Committee meeting of the year. There’s no expectation of any change in interest rates – Brexit is putting pay to that – but the question is how will the Bank pitch the policy outlook for the year ahead? In the short term a dovish tone is expected, reflecting not only ongoing Brexit uncertainty but also mirroring the decline in both PMI stats and inflationary pressures that have been noted of late. However, the market could well be disappointed if there’s no hawkish bias seen in the longer term. The Pound may be beaten down, but it’s still some way off recent lows.
The European Central Bank issues its monthly economic bulletin today, too. There’s a meaningful chance that this could contain news of further downward revisions to the outlook for the currency bloc, adding weight to those calls for the ECB to deliver fresh stimulus measures in a bid to avert a return to recession. The tone here could directly impact the outlook for EUR.
Keeping with Europe, UK PM Theresa May returns to Brussels today in a bid to gain fresh concessions over Brexit. Yesterday’s undiplomatic outburst by Donald Tusk could be seen as containing a hidden message. He’s furious that someone wants to leave the club and even more aggrieved by the fact there’s no clear-cut way to deliver this. However, it is happening and it’s his mess to sort out, so does this mean he’s ready to give up some ground? With seven weeks left to run until the deadline it may still be too early for him to buckle, but markets seem convinced. Even if Theresa May goes home empty handed tonight, downside pressure on the Pound could be short lived.
USD/JPY may be something of a puzzle when it comes to the fundamentals right now, but technical indicators show potential for the pair to post further gains. 110 is proving a difficult level for the pair to overcome, but assuming this does fall look for the 38.2% retracement of the October-January sell off around 110.30, then the 50% retracement around 111.20