17.06.2013 The Big Picture Judgment week: The main event of the week will be the FOMC meeting on Tuesday and Wednesday. The markets will be looking for greater clarity on when and how the Fed may begin “tapering off” its quantitative easing. The Fed has been trying to send the message that they might reduce their bond-buying a bit, but is frustrated because the market seems to think just in on/off, all-or-nothing terms. That’s why the rise in US bond yields and growing expected yield gap with other countries has failed to support the dollar vs many of the major currencies, although the ensuing “risk off” environment has strengthened the US currency vis-à-vis the EM currencies. With US stocks remaining fairly well underpinned (down from the highs but well off the recent lows), demonstrating continued confidence in the US economy, it’s possible that the Fed gives both confirmation of the likelihood of “tapering off” and more reassurance about the pace and the impact on the US economy. That combination could prove reassuring for the markets and set the stage for a USD rally. GBP is likely to be in the spotlight this week after Bank of England Deputy Governor Paul Tucker announced his resignation Friday. Tucker has voted against expanding QE. UK Chancellor of the Exchequer George Osborne will appoint Tucker’s successor. As Osborne was the one who chose former Reserve Bank of Canada Gov. Mark Carney as the new BoE Governor, it’s likely that he will appoint someone with a similarly dovish view to replace Tucker. That prospect could weigh on GBP/USD, although such a move might just change the monthly Monetary Policy Committee vote to 4-5 from the recent 3-6; still not enough for a majority. The two-day G8 meeting begins today in Northern Ireland. The summit is likely to focus on boosting trade, fighting tax evasion and increasing tax transparency, particularly with regards to mining companies and their payments to EM countries. Last year’s summit resulted in a rather bland statement with no mention of FX matters; this year’s may be similarly a non-event for FX. Greek PM Samaras meets with his two coalition partners to discuss his decision to shut the state broadcasting company, ERT. A rift in the coalition could cause a destabilizing early election, but as polls indicate that no one party has enough support to govern alone, it’s likely they will reach some compromise. ECB Board members Joerg Asmussen and Yves Mersch will be speaking; Mersch said last week that it was “conceivable” for the ECB to institute negative deposit rates “depending on the economic landscape.” This contrast with Fed policy should restrain EUR/USD. In the US, the Empire State manufacturing survey for June is expected to rise to zero from -1.43 and the NAHB housing market index to rise slightly to 45 from 44, which could help to counter the impact of last week’s disappointing US statistics.
Posted on: Tue, 18 Jun 2013 02:06:31 +0000
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