Waiting For The Fed

The dollar continues to straddle the JPY109 area as it has done in the past two sessions. The greenback is firm but does not appear to be going anywhere quickly. A key driver, US yields, is also in a consolidative phase. The week's range so far ( ~JPY108.75-JPY109.35) may continue to confine prices until the FOMC meeting outcome. The Australian dollar is also moving sideways. It remains within Monday's range (~$0.7705-$0.7775).  A break of the $0.7700 area could signal another cent decline to test this month's low. The US dollar may be in a new and slightly higher range against the Chinese yuan. In January and February, the greenback was mostly confined to the range set in the first two sessions of the year (~CNY6.43-CNY6.5150). However, now seems to be in a range set last week (~CNY6.4775-CNY6.5440). Chinese banks have reportedly been buying dollars from exporters and other corporates and swapped them to circumvent monthly quotas on the foreign currencies they can buy. The PBOC set the dollar's reference rate at CNY6.4978, nearly spot on with the bank model projections.  

Europe

Voting in the Dutch election ends today. Prime Minister Rutte is expected to secure a fourth term. However, the political landscape is so fragmented that it took around 220 days after the last election to form a coalition. That government resigned en masse earlier this year in the face of a racial profiling scandal that falsely accused some minority parents of defrauding the government through child benefits. Several EU members have seen the populist challenge weaken, and it is possible that this was the case in the Netherlands too. 

The dispute between AstraZeneca and Europe may come to a head tomorrow. The European Medicine Agency is expected to hand down its judgment on the vaccine that many countries in Europe (and a few outsides) have suspended. The EMA has played down the statistical relevance of the blood clot concerns and is expected to do so tomorrow. France and Italy have indicated that if so, they will resume AstraZeneca vaccines. Still, the episode underscores the sense among investors that Europe is lagging in the vaccine rollout and fiscal efforts.  

The euro held yesterday's low a little above $1.1880 and has approached $1.1920 in early European turnover. Yesterday's high was around $1.1950.It is the fourth consecutive session that the euro is making lower highs. The single currency has not been above $1.20 since March 4th, and there is a 1.2 bln euro option struck there that expires today. Another option for 1.7 bln euros at $1.19 also expires today, but given that it has been straddling that area, one must assume that it has been hedged out. Sterling is firm, but it too does not appear to be going anywhere quickly. For the better part of three weeks, it has been chopping between $1.38 and $1.40. Violations have been short-lived and minor. It is straddling the middle of the range. Expiring options (~GBP615 mln) struck between $1.3885-$1.3890 have likely been neutralized.  Separately, note that Turkey's central meets tomorrow.  It is widely expected to hike the one-week repo rate by 100 bp to 18%. The lira is off about 0.75% against the dollar year-to-date. Over the past week, the dollar has been trading around TRY7.50 (the 200-day moving average ~TRY7.4355).

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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