We’ve got two important central bank meetings while the US markets are closed for July 4. Will the ECB repeat its passive June 6 performance and will the BoE fail to provide any news or statement?
USDJPY confirmed overnight that yesterday’s break of 100 was a false one until proven otherwise, as the retest late yesterday of that symbolic level failed and the pair swooped a bit lower towards 99.50 in early European trading this morning. There is endless noise of options expiries on both sides of 100.00 recently, but also consider the factors Steen mentions this morning in his post on the potential for JPY upside (economic surprises in Japan and the upcoming elections).
From an Elliott Wave Theory point of view, the correction in late May/early June doesn’t look like a “complete” setup, and the idea that this could be the top of a B-wave is compelling, with a new C-wave needed to take the pair to new lows to perhaps 91 or 92 before the lows are in and we can talk about. That’s just a scenario, however, not a prediction – there’s a lot of wood to chop before this starts to look like the likely setup – starting perhaps with a retreat back through 98.00. Stay tuned…
Remember that the US is out for the day on holiday for Independence Day, though because Draghi is out speaking starting at 1230 GMT today, we can expect a lively early US session.
ECB and BoE
The Euro should head weaker eventually almost regardless of today’s ECB outcome, but the very near term will likely see a significant reaction to today’s proceedings. Again, a repeat performance of the June 6 meeting, given where the Euro is trading at present, could well trigger a Euro rally that would see EURUSD back toward perhaps 1.3200 and then some in the nearest term. But the eventual problem with a passive ECB here is the re-aggravation of the “tail risk” theme as a tight ECB will aggravate the risk to banks and sovereign debt, particularly if yields remain higher or the Portugal situation worsens (see Steen’s commentary on Portugal) from yesterday). Any flagging of new easing initiatives (rate cut, new LTRO’s, other) would keep the pressure on the Euro both here and now.
As for the BoE, see my piece from late yesterday on the potential outcomes for EURGBP depending on the combined outcome of the ECB and BoE meetings. Expectations for this BoE meeting are justifiably low as UK data has been stronger and Mr. Carney has only been on the job for three days.
Chart: GBPUSD
GBPUSD is an interesting one today, as yesterday’s squeeze saw the shorts taking it on the chin with an outside day that engulfed the previous three days of downside and then some. Today’s meeting will set the tone for the coming few days. We could see a further consolidation higher as the pair does look oversold in the near term, but the technicals still point to an eventual 1.5000 test even if we back up a bit more first. 
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Looking ahead
AUDUSD is in an interesting spot as the RBA’s Lowe was out in a damage control effort on Steven’s wording describing the RBA deliberating on an interest rate move for a “very long” time, which led the market to believe that the central bank came close to cutting at its Tuesday meeting. This retreat from the RBA has the AUDUSD backing up a bit, though we need to pull well back through 0.9200 or so to begin to talk reversal scenarios.
Tomorrow sees this week’s grand finale with the US employment data. Note that the ISM non-manufacturing employment sub-index was a strong 54.7 even as the overall survey disappointed, and the weekly jobless claims have been rolling in at the 350k level, give or take, for the last several weeks, so anything below the 165k consensus would be a surprise to me. Let’s see how it plays into all of the taper noise.
It’s tough to determine how much the situation in Egypt is roiling markets – but certainly we need to see a huge reversal in the backup in crude oil prices to an incredible 102.00/bbl in the spot month of WTI yesterday as these levels will provide considerable further headwinds for the US recovery if they are maintained. The backup in Brent prices has been less pronounced and within recent ranges. Regardless, the backup in crude oil prices is making the likes of NZDNOK look rather mispriced again, as in too expensive.
Economic Data Highlights
- Australia May Building Approvals out at -1.1% MoM and -3.2% YoY vs. -1.0%/-0.1% expected, respectively and vs. +28.8% YoY in Apr.
- UK Jun. Halifax House Price out at +0.6% MoM and +3.7% YoY vs. +0.4%/+3.6% expected, respectively and vs. +2.6% YoY in May
- UK BoE Announces Rates/Asset Purchase Target (1100)
- Euro Zone ECB Announces Interest Rates (1145)
- Euro Zone ECB Draghi Holds Press Conference (1230)
- Australia AiG Performance of Construction Index (2330)