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

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

Ilya Spivak, Head Strategist, APAC

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statement because the former stands much lower than the latter – and quipped that excess liquidity can always be withdrawn.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

GMTCCYEVENTACTEXPPREV
21:30NZDPerformance Services Index (DEC)58.9-59.8
23:50JPYPPI Services (YoY) (DEC)0.4%0.2%0.2%
02:00NZDCredit Card Spending (MoM) (DEC)-0.8%-0.6%
02:00NZDCredit Card Spending (YoY) (DEC)7.4%-8.4%

European Session

GMTCCYEVENTEXPPREVIMPACT
07:00CHFTrade Balance (DEC)2.90B3.14BLow
07:00CHFExports Real (MoM) (DEC)--2.1%Low
07:00CHFImports Real (MoM) (DEC)-0.2%Low
14:00EURECB’s Lane Speaks in Dublin--Medium

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EUR/USD1.06981.07651.08071.08321.08741.08991.0966
GBP/USD1.40521.4161.42051.42681.43131.43761.4484

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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