Another session of risk aversion sent global equities sharply lower on Monday due to concerns that Britons are leaning towards leaving the European Union. Most recent polls from ORB, ICM, and YouGov showed that the Brexit campaign has extended its lead over the Bremain camp ahead of the June 23 referendum. Markets anxiety was clearly reflected in CBOE’s volatility index “VIX”, which climbed above 20 for the first time since late February, indicating that investors are now taking the vote more seriously than in the past couple of weeks, and accordingly are adjusting their portfolios.
Although Japan’s policy makers hate the idea of an appreciating Yen, the currency has proved to be a trader’s best friend in uncertain times. The Yen appreciated across the board on Monday and USDJPY was only 20 pips away from 18-month low recorded on May 3 while EURJPY and GBPJPY traded at lowest levels since 2013. Bank of Japan (BoJ) is one of the major four central banks to meet this week, and markets are anticipating the central bank to stand pat on monetary policy, especially with GDP being revised higher and sales tax hike being delayed. However, a surprise could be on the cards, as increasing purchases of EFTs and JGB’s or taking interest rates deeper into negative territory are all available options for the BoJ. The key question remains how will further easing impact the Yen. In fact, investors are buying the Yen for the purpose of hedging against the unknown, and not because of the attractive negative yields provided by their bonds, and this trend is likely to continue whatever the central bank’s decision is on Thursday. Unless BoJ intervenes directly in foreign exchange markets the Yen’s strength unlikely to be curbed with all the uncertainty surrounding the financial markets.
The Federal Reserve kicks off its two-day policy meeting today with market expectations for a rate hike close to zero percent according to CME’s fedwatch. This has already been priced in the U.S. dollar, and markets are more interested in knowing how the Fed sees the health of the labour market after May’s disappointing NFP figures, and whether clear signals will be given as to the time frame of the tightening of US monetary policy, which will shape expectations for the next couple of months. The dot plot will not help much as the Fed is likely to stick to two raises in 2016, but Yellen’s tone most probably to be the main driver of the U.S. currency. Today’s US retail sales figure will be the last major data release ahead of tomorrow’s decision, and a very strong figure is required to offset recent weakness in labour market and to maintain an optimistic outlook for the economy.
For more information please visit: ForexTime
Disclaimer: The content in this article comprises personal opinions and ideas and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability as to any loss arising from any investment based on the same.
Risk Warning: There is a high level of risk involved with trading leveraged products such as forex and CFDs. You should not risk more than you can afford to lose, it is possible that you may lose more than your initial investment. You should not trade unless you fully understand the true extent of your exposure to the risk of loss. When trading, you must always take into consideration your level of experience. If the risks involved seem unclear to you, please seek independent financial advice.
Written by Hussein Sayed, Chief Market Strategist at FXTM
