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The Week Ahead – Continuation or disruption?

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USDJPY awaits BOJ boss nomination

Chart of USDJPY

The Japanese yen steadies as markets expect a new face at the top of the Bank of Japan. Eyes are now on the successor to incumbent Governor Haruhiko Kuroda, whose term ends in April, as traders look forward to seeing how eager the newcomer will be in cutting the massive stimulus. The government is presenting its nominees to parliament next week, and given that Prime Minister Fumio Kishida’s coalition holds the majority, this would be pretty much a done deal. Rumours that Kazuo Ueda, a hawkish figure, would be appointed has given the yen an initial nudge and could lead to a breakout of the 126.50-134.70 range.

EURUSD rallies as the ECB may press on

Chart of EURUSD

The euro consolidates as the macro environment improves. With another 50 bp priced in for March, the ECB has kept options open for the May meeting. The energy crisis and supply constraints, main culprits of the inflation spiral since the pandemic, have seen their impact eased with falling input prices, lightening the ECB’s burden in the process. The main inflation concern is whether wage growth would make it stickier. This week’s GDP across the eurozone is the key metric to pay attention to as a decent reading would alleviate fears of recession from the tightening cycle. 1.0500 is a key support and 1.1180 the next target.

GBPUSD steadies ahead of key data

Chart of GBPUSD

The pound bounces as the market focuses on Britain’s CPI. The Bank of England has hinted that interest rates were approaching their peak following a 10th consecutive hike earlier this month. However, hawkish divergence might offer some extra support to the currency, with their Chief Economist Huw Pill stating that the central bank is ‘prepared to do more’. Solid readings in both employment and inflation data this week would further tilt the balance in the hawks’ favour. Externally, the improved risk environment may keep providing tailwinds to the higher beta Sterling. The cable is currently swinging between 1.1900 and 1.2450.

NAS 100 retreats as CPI looms

Chart of US100

The Nasdaq 100 falls back as investors are striving to navigate between mixed data and Fed signals. A historically strong labour market is at odds with disinflation as rising wages are policymakers’ primary concern. While Fed Chair Jerome Powell’s moderate rhetoric has given the market greenlight, a series of hawkish comments from his colleagues threw the bulls into confusion, with some officials warning of distortion in the inflation reading. The next CPI will be a major market mover as a confirmed easing of the price pressure would fuel risk-taking in equity markets. 13200 is the next hurdle and 11800 a fresh support.

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