Forex: Central Bank Meeting Minutes May Hurt Pound, Boost US Dollar

Ilya Spivak
May 21, 2014

Talking Points:

  • BOE May Meeting Minutes May Disappoint Hawks, Weighing on the Pound
  • US Dollar May Get Another Push Higher from Pro-“Taper” FOMC Minutes
  • Yen Gains After BOJ Rate Decision, Aussie and Kiwi Fall on Risk Aversion

The release of minutes from this month’s Bank of England monetary policy meeting headlines the economic calendar in European trading hours. As we discussed in detail last week in anticipation of the central bank’s quarterly Inflation Report, the thinking on the rate-setting MPC committee may be far less hawkish than the markets are primed to hear. With that in mind, rhetoric pushing back against near-term interest rate hike expectations in today’s release may weigh on the British Pound and we remain short GBPJPY.

Later in the day, the spotlight turns to what may prove to be the week’s most impactful bit of scheduled event risk: minutes from April’s Federal Reserve meeting. Traders will be keen to gauge policymakers’ confidence in QE reduction continuity amid what looks like a re-acceleration of US growth. Recognition of this transition in its infancy would go a long way toward brandishing the Fed’s ability to read the business cycle, bolstering the central bank’s credibility and scattering doubts about the likelihood of an end to asset purchases by autumn.

Unencumbered speculation about the culmination of QE and the commencement of interest rate hikes thereafter bodes well for the US Dollar against its leading counterparts. In fact, technical positioning hints a trend change is afoot. Fears of ending stimulus may likewise trigger broader-based risk aversion across the financial markets, a scenario that bodes ill for higher-yielding and cycle-sensitive currencies. We are still holding short AUDUSD and have now entered long USDCAD.

The Japanese Yen narrowly outperformed in overnight trade after the Bank of Japan opted to keep monetary policy unchanged as expected, disappointing bets on an expansion of stimulus. The Australian and New Zealand Dollars came under pressure as Asian stocks edged downward, undermining demand for the sentiment-linked currencies. Japanese shares led the way lower among the region’s top bourses, with the benchmark Nikkei 225 index down as much as 0.5 percent.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

22:45

NZD

Net Migration s.a. (APR)

4080

-

3890

23:50

JPY

Merchandise Trade Balance Total (¥) (APR)

-808.9B

-646B

-1446.0B

23:50

JPY

Adj Merchandise Trade Balance (¥) (APR)

-844.6B

-633.0B

-1626.8B

23:50

JPY

Merchandise Trade Exports (YoY) (APR)

5.1%

4.8%

1.8%

23:50

JPY

Merchandise Trade Imports (YoY) (APR)

3.4%

0.8%

18.1%

0:30

AUD

Westpac Consumer Conf Index (MAY)

92.9

-

99.7

0:30

AUD

Westpac Consumer Confidence (MAY)

-6.8%

-

0.3%

1:00

AUD

Skilled Vacancies (MoM) (APR)

-0.2%

-

-0.2%

1:30

AUD

Wage Cost Index (QoQ) (1Q)

0.7%

0.7%

0.7%

1:30

AUD

Wage Cost Index (YoY) (1Q)

2.6%

2.6%

2.6%

2:41

JPY

BOJ 2014 Monetary Base Target (¥)

270T

270T

270T

3:00

NZD

Credit Card Spending (MoM) (APR)

-3.2%

-

1.5%

3:00

NZD

Credit Card Spending (YoY) (APR)

3.2%

-

7.6%

5:00

JPY

Supermarket Sales (YoY) (APR)

-

-

9.4%

6:30

JPY

BOJ Gov Kuroda Holds Press Conference

-

-

-

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:00

CHF

Money Supply M3 (YoY) (APR)

-

9.0%

Low

8:00

EUR

Eurozone Current Account s.a. (€) (MAR)

-

21.9B

Low

8:00

EUR

Eurozone Current Account n.s.a. (€) (MAR)

-

13.9B

Low

8:30

GBP

Bank of England Minutes

-

-

High

8:30

GBP

Retail Sales ex Auto (MoM) (APR)

0.5%

0.1%

Medium

8:30

GBP

Retail Sales ex Auto (YoY) (APR)

5.2%

4.2%

Medium

8:30

GBP

Retail Sales Incl. Auto (MoM) (APR)

0.4%

0.1%

Medium

8:30

GBP

Retail Sales Incl. Auto (YoY) (APR)

5.1%

4.2%

Medium

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EUR/USD

1.3626

1.3662

1.3682

1.3698

1.3718

1.3734

1.3770

GBP/USD

1.6709

1.6772

1.6805

1.6835

1.6868

1.6898

1.6961

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

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