The forex markets are rather quiet as the week started and major pairs and crosses are staying in tight range. Euro remains the weakest currency this month as weighed down on expectation that ECB would ease policy further in June. The German magazine Der Spiegel reported that ECB executive board member Praet would proposal cutting the main refinancing rate by 10 bps to 0.15% at the meeting on June 5, that is another record low. Also, Praet would suggest to lower the deposit rate from the current 0% to negative to boost lending. This is also unprecedented. ECB declined to comment on the report.
According to a Bloomberg survey, 47 of 52 respondents, that is, 90% of economists expected ECB will easy policy in June. Some noted that the only question left is what measures to be taken. Over half of the respondents predicted a simultaneous cut in the main refinancing rate and the deposit rate. There are some economists predicted that ECB would suspend the absorption of liquidity created by the bond purchases and leave EUR 170b into the financial system. Some predicted extension of the LTROs and quantitative easing.
Weakness in the euro boosted the Dollar Index sharply higher. A near term bottom is in place at 78.90, just ahead of key support zone of 78.72/79.00. Nonetheless, the index is staying in range and there is no confirmation of reversal yet. Focus remains on 80.60 resistance. Break there will be a strong indication of reversal and will bring stronger rally to 81.39/48 resistance zone for confirmation. Before that, we'll stay neutral in the index first.
On the data front, New Zealand PPI inputs rose 1.0% qoq in Q1 while PPI outputs rose 0.9% qoq. Both were above expectations. UK rightmove house price rose 3.6% mom in Mary. Japan machine orders rose 19.1% mom in March. The economic calendar is light today with focus mainly on German Buba monthly report.
Looking ahead, the economic calendar isn't too busy this week. Main focus will be on minutes of RBA, BoE and FOMC meetings. In particular, Sterling tumbled sharply earlier this month after the BoE quarterly inflation report and further selloff could be seen if the minutes deliver a dovish message. Other data to be watched include Eurozone PMIs and German IFO, which could solidify the case for ECB easing in June.
Some highlights for for the week ahead:
- Tuesday: RBA minutes; UK CPI, PPI; Canada wholesale sales
- Wednesday: Japan trade balance, BoJ policy decision; BoE minutes, UK retail sales; Eurozone consumer confidence; FOMC minutes
- Thursday: China HSBC PMI manufacturing; Eurozone PMIs; UK GDP revision; Canada retail sales; UK jobless claims, existing home sales
- Friday: German GDP final, Ifo business claims; Canada CPI; US new home sales