A new trading week likely to see positioning into FOMC and BoJ

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The economic calendar this week, barring a few scheduled events is likely to remain light on data. The RBA and the RBNZ will be meeting this week and Monday kicks off into high gear with Fed Chair, Janet Yellen and Boston Federal Reserve President and FOMC voting member, Eric Rosengren speaking later in the day. Over the weekend, another FOMC voting member, Loretta Mester offered little clues on how the FOMC will decide on the June 14 – 15 policy setting meeting. She however did not sound dovish. While the markets have started scaling back expectations on the Fed rate hike in June, there is still a lot could that could happen. In fact, as Ms. Mester herself says, “You can’t read too much into one number, but it is certainly part of the data that will be taken into account as we go into the June FOMC meeting and for the rest of the year.”

The week ahead, from a technical perspective of things could see some kind of positioning take place ahead of the high impact week of June 13th – 17th.

Starting June 15th, the FOMC will be releasing its staff economic projections and announcing the fed funds rate followed by a press conference.

A few hours later, the baton will be passed over to the Bank of Japan which meets for its policy meeting. On the same day (June 16th) the Swiss National Bank announces its LIBOR rate followed later in the day by the Bank of England’s meeting. Combined, that’s a 24 hour non-stop high impact events lined up one after another.

Among the central bank meetings, the SNB and the BoE’s meetings are likely to stay off the limelight with no major policy decisions being taken, leaving the markets to focus on the FOMC and the BoJ meeting.

Had the May’s jobs report came out slightly better, June’s policy meeting would have been an almost done deal. But thanks to the weak print in jobs, it is now a guessing game.

  • Will the Fed ignore May’s jobs report considering it is just one month data and the fact that Verizon strike added to the weakness?
  • Or will the Fed also considering the 59k deductions from the previous two months?
  • Is the labor market tightening and perhaps into its late cycle of tightening, signaling a period of weak job growth?

That and many more questions weigh as the FOMC convenes for its two-day meeting.

Then, there’s the Bank of Japan. While the yen has managed to ease back from its recent strength, last week saw the yen long positions rise as well. Will the BoJ follow through with its jawboning or will the BoJ go all out and expand its monetary base, which currently stands at 80 trillion yen?

Last week, [Japan’s] Prime Minister Shinzo Abe disclosed that the sales tax hike would be postponed to October 2019. He also announced some kind of a mini-fiscal spending plans, but not many details are available at this point. Investors will be questioning whether the mini-fiscal spending plan will be used to buy time in the near term, giving the BoJ some more time and maybe act in July than June.

The lingering questions, most of which can be answered by the policy setters alone is more than enough to see significant volatility in one week’s time.

And then there’s Brexit and the uncertainty, which is the icing on the cake, in just over 7 days.

Timeline

Date/Time Event
June 15th, 2016 1800 GMT FOMC Rate statement
June 16th, 2016 0100 GMT BoJ Monetary policy meeting

 

While the near term news this coming week will be dominated by the NFP and perhaps later by the speeches from Janet Yellen and Eric Rosengren, savvy investors are likely to build their dollar positions preparing for the week ahead which will no doubt set the near term trends in the dollar crosses.

Monday’s speeches will be the final speeches Fed members can give ahead of the blackout period starting June 7 through to June 16th.

From a technical view, the dollar gave up all of its gains from the past four weeks by Friday’s close. Support at 106.50 – 106.225 is a level to watch for, as a break below this support could extend declines to 105.375.

USDJPY (106.58) – Mind the falling wedge
USDJPY (106.58) – Mind the falling wedge

The weekly chart on USDJPY (106.58) shows prices moving in a very steep descending/falling wedge pattern and it is likely that a possible breakout, provided the 106.50 – 106.225 support holds could see strong gains towards 116 levels, which could possibly infer a stronger US dollar and a weaker yen. While it is hard to expect what the central banks will decide, USDJPY’s price action clearly is at a key level, that is worth keeping an eye on.

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