USD
The US dollar returned some of its recent gains when Fed Chairperson Yellen sounded extra cautious in her latest speech. She noted that more caution is warranted if the Fed should tighten monetary policy and that they have a range of tools left to ease if necessary. She also pointed out that global economic and financial risks have increased, even though the employment and domestic spending situation remains robust. The CB consumer confidence posted a stronger than expected reading of 96.2 from the earlier 94.0 figure. The ADP non-farm employment change report is due next and a 195K gain is eyed.

EUR
The euro advanced to the dollar but struggled to hold on to its current levels against its other forex rivals. There were no major reports out of the euro zone yesterday and only the German preliminary CPI reading is due today. Analysts are expecting to see a 0.6% pickup in price levels.

GBP
The pound advanced to the dollar but was also slightly weaker compared to its other peers as there were no major reports out of the UK. There are still no major reports lined up from the UK economy today, keeping market sentiment in play.

CHF
The franc regained ground to the US dollar despite the lack of data from Switzerland. Today has the UBS consumption indicator on tap and a rise from the earlier 1.66 figure could mean more gains for the Swiss currency.

JPY
The yen managed to hold on to its recent gains as risk appetite remained weak in the forex market. Data from Japan has been mixed, with its latest preliminary industrial production figure falling short of consensus. The report showed a 6.2% fall versus the projected 5.8% decline.

Commodity Currencies (AUD, NZD, CAD)
The comdolls were able to advance against most of their counterparts as Fed head Yellen’s dovish rhetoric supported business and consumer confidence. Leading inflation indicators from Canada missed expectations while New Zealand’s building consents report posted a 10.8% rebound. US crude oil inventories data is due next.

4 thoughts on “Forex Major Currencies Outlook (Mar 30, 2016)”

  1. Ryan Gandalf van Jaarsveld says:

    Thank you Kate – not surprised about Yellen’s speech, why would she suddenly change her rhetoric a few weeks after their last FOMC meeting. What is interesting is the divergence taking place within the fed. Just last week we had Fed speakers Bullard and other Hawkish, albeit non-voting, members speaking in very hawkish tones indicating to markets that a rate hike could be expected as early as April. Now when one uses the Fed Watch Tool (http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html) it is clear that no rate hike was in the cards and in fact right now there is just over a 60% chance of a hike next Feb. Of course this tool uses real data and the Fed have said everything is data dependent. Though to get back to my point – what is up with the lack of consistency at the Fed and the mixed message being given to the market. I understand that there is meant to be a polarity between doves and hawks though surely this should be based on data and not opinion or goals for where one would like the market to move? If the hawks are dollar bulls and if they make statements about rate hikes then surely a dove would look at the same data and say they agree – otherwise it means that this is about how doves and hawks interpret data and that means emotion is involved in decision making? So I guess the real question is what are the doves and hawks not agreeing on – what are they looking at and why are the interpretations so different? Or is Yellen seeing the data as it is and Bullard and co trying to create the data as it needs to be and therefore following the path of credendo vides – or “If we believe it then we will see it”? Maybe this is not about divergence at the FOMC – maybe this is just the old good cop, bad cop routine. Hawks preventing the market from dropping too much and the doves preventing from people pricing too much in. This buys them some time, lessens volatility in the market and when positive data has continued to come in and inflation goals continue to look positive then move forward and if it fails to happen then the market doesn’t crash. The Fed must be getting tired of taking the full responsibility for the economy. I wonder how long it will be before the government realise that fiscal policy needs to play a bigger role. I think that is a global issue at the moment.

  2. Andrew E says:

    Thanks Kate for the analysis.

    Ryan, I find the fed message interesting too. I can only think that it is a clever way of warming third parties up to the idea of a rate rise maybe 2016Q3/4. The IMF outlooks etc all say “any US rate rise should be clearly and widely communicated in advance” to avoid US diverging away from other economies. Building expectations and then not fulfilling them would seem to be a way of doing this.. a bit like kneading a piece of dough, making expectations less prone to react with repeat anticipation and retraction..

    1. Ryan Gandalf van Jaarsveld says:

      That is a very good point Andrew

  3. Tyler Lund says:

    Thanks for the Analysis Kate.

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