FOMC Minutes Broadly Predictable

Forex News and Events:

The USD continues to make headway, as the optimism around the US grows and concerns of the Greek agreement erodes confidence in the EUR. However, lack of substantive drivers makes us expect a slight pullback in USD strength near term. Yesterday’s release of the FOMC meeting minutes showed that the Fed is generally more secure with the pace of the US economic recovery but fairly surprised by the easing of inflation. An interesting shift in language was the clarification of the wording “extended period” stating “a number of members noted that the Committee’s expectation for policy was explicitly contingent on the evolution of the economy rather than on the passage of any fixed amount of calendar time”. So for USD traders this means US economic data is critical to the timing of tightening and continued USD appreciation. But currently the FOMC is in no hurry to change policy, stating “No decisions about the Committee’s exit strategy were made….”.

In Japan, the BoJ voted unanimously to hold the policy rate at 0.1% (universally expected) and no modifications to emergency facilities were made (JGB purchases stand at JPY1.8trn per month). Interestingly, the accompanying statement was slightly more optimistic (supported by last week’s Tankan survey) than the market had expected, stating “improvements in the corporate sector originating from exports are expected to spill over to the household sector”, helping growth “gradually” recover. With the JPY getting less of a kick from risk aversion trading and highly susceptible to growing yield differentials, we believe continued deprecation of JPY is likely. However, with positioning getting heavily short JPY, some level of unwind might be necessary before moving lower.

With an ultra light economic Calendar, markets will be focused on a slew of speakers and Greece. Yesterday, media reports / offical comments seemed to question the sustainability and effectiveness of the EU/IMF – Greek agreement. As in all things, while the headline sounds good however the devil is in the details. Currently there is considerable disagreement between EU and German officials on what market rate will be charged if Greece was actually to use the proposed facility (of course the official line is they won’t). The dispute caused a massive sell off in Greek debt with the 10yr hitting 7.16% and EURUSD to head down to 1.3355. With the IMF heading to Greece today we should expect very pro-Greek statements but when the smoke clears there will be more questions than answers.

Today’s Key Issues (time in GMT):

00:00 IMF staff to visit Greece to provide budget advice.
00:00 GBP BoE MPC begins two-day meeting.
07:15 CHF Feb retail sales; last +4.4% y/y.
07:43 EUR ITA Mar service PMI index, 51.5 eyed; last 50.8.
07:48 EUR FRA Mar service PMI index, 53.0 eyed; last 54.6.
07:53 EUR GER Mar service PMI index, 54.7 eyed; last 51.9.
07:58 EUR Mar service PMI index, 53.7 eyed; last 51.8.
07:58 EUR Mar composite PMI index, 55.5 eyed; last 53.7.
08:28 GBP Mar services PMI index, 58.0 eyed; last 58.4.
09:00 EUR Q4 GDP – revised, +0.1% q/q, -2.1% y/y eyed; prelim +0.1%, -2.1%.
09:00 EUR Q4 PPI, +0.1% m/m, -0.4% y/y eyed; last +0.7%, -1.0%.
10:00 EUR Ger Feb industrial orders, -1.0% m/m eyed; last +4.3%.
13:00 USD Ex-Fed Greenspan testimony before Financial Crisis Inquiry Commission
18:00 USD Kansas City Fed President Hoenig (FOMC voter)
17:30 USD FOM Chair Bernanke speech in Dallas
19:00 USD Feb consumer credit; last $5.0 bln
23:50 JPY Core machinery order,s % m/m
23:50 JPY Current account, ¥ trn

Forex News Provided by ACM