The Great Central Bank Yawn
Neither the ECB or the BOE offered up much of anything at yesterday’s Central Bank events.
Not wanting to impede the nascent EU economic recovery via a stronger Euro, the ECB forward guidance remained dovish.
The BoE decision was equally dull as the central bank voted unanimously to keep rates in check while towing the usual G-4 Central Bank mantra to remain cautious.
The predictably cautious nature of the global central banks continues to drain volatility from currency markets. So get ready for more of the same old same old in early 2018 “that economic growth remains robust yet inflation remains dovish.”
US shoppers are embracing the holiday season as retail sales surged. While it portends well for near-term consumption metrics, it does little to support the dollar as the shopping frenzy will likely cool in January.
Frankly, there are few if any conclusions to be made from overnight markets, so I suspect local traders are prepared to slide into the weekend on a quiet note.
With no news on Tax reform US stock markets were happy to take profits and trim positions ahead of the weekend which created an afternoon slide on the broader indices.
Oil prices are trading off overnight session lows as the Forties pipeline supply disruption, and a Texas refinery fire is helping to support gasoline prices, attracting some bottom feeders on WTI. It’s been a long week for Oil Patch traders who will be looking to wind down for the weekend, so unless any surprises, trading should remain subdued.
There were few if any fireworks from the global central banks who are more than content erring on the side of caution and steering a dovish tack. G-10 central bank dovishness bodes well for Asian currencies in the medium term and more so for the Malaysian Ringgit as BNM is expected tweak interest rates higher in January in response to surging economic growth and to thwart inflationary expectations.
My outlook for next week is for trading to remain subdued within the 4.0650-4.10 levels with US dollar rallies quickly faded. However, given that we are entering holiday season liquidity conditions so absent any surprises, we’ll likely trade on a lighter note
The Japanese Yen
USDJPY has taken a bit of a beating after the FOMC’s dovish rate hike put the final nail in the coffin on the long USDJPY trade into year end. Going forward, the weakness in the USD could pick up some speed into year end, but unless an unexpected downslide catalyst hits, traders are more apt to sit tight waiting to fade tax headline rallies than chase the dollar lower.
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