Yen and Aussie Dollar May Reverse as Markets Eye ECB, FOMC

2016-01-26 06:57:00

Talking Points:

Yen gains, Australian Dollar drops as risk aversion returns in Asia
Dovish commentary from ECB’s Lane may help reboot risk appetite
Pre-positioning for FOMC rate decision could bolster risk-on tone

Where does the DailyFX team expect markets to go in 2016? Find out here !

Risk aversion returned as the driver du jour for currency markets as Asian stock exchanges followed Wall Street downward. The Yen advanced as the risk-off mood pressured carry trades funded in terms of the perennially low-yielding Japanese unit. The sentiment-linked Australian Dollar underperformed.

The European data docket is relatively muted, putting the spotlight on central bank commentary once again. Scheduled remarks from Central Bank of Ireland Governor and ECB policymaker Philip Lane are in focus this time around. Traders will look for clues on the likelihood that the Eurozone monetary authority will expand stimulus efforts in March.

ECB President Mario Draghi hinted additional easing may be on tap at central bank’s next meeting in the statement accompanying last week’s policy announcement. He seemed to reinforce that point in a speech yesterday, where he stressed that the ECB targets headline and not core inflation – a telling statement because the former stands much lower than the latter – and quipped that excess liquidity can always be withdrawn.

A similar tone from Mr Lane may reinforce the probability for further accommodation in the eyes of investors. That seems likely to boost risk appetite, offering renewed support to the Aussie and Kiwi Dollars while punishing the Euro and Yen anew.

Pre-positioning ahead of Wednesday’s FOMC rate decision may reinforce this dynamic. Investors have scaled back 2016 tightening bets amid risk aversion since the beginning of the year. They will likely look for validation of that adjustment in the text of the FOMC policy statement and may tailor exposure accordingly, undermining follow-through on Asia-session moves.

Asia Session

GMT	CCY	EVENT	ACT	EXP	PREV
21:30	NZD	Performance Services Index (DEC)	58.9	-	59.8
23:50	JPY	PPI Services (YoY) (DEC)	0.4%	0.2%	0.2%
02:00	NZD	Credit Card Spending (MoM) (DEC)	-0.8%	-	0.6%
02:00	NZD	Credit Card Spending (YoY) (DEC)	7.4%	-	8.4%

European Session

GMT	CCY	EVENT	EXP	PREV	IMPACT
07:00	CHF	Trade Balance (DEC)	2.90B	3.14B	Low
07:00	CHF	Exports Real (MoM) (DEC)	-	-2.1%	Low
07:00	CHF	Imports Real (MoM) (DEC)	-	0.2%	Low
14:00	EUR	ECB’s Lane Speaks in Dublin	-	-	Medium