USD Trading Outlook (01-06-2015)

Title: RBA, ECB, BOE and NFP this week. Volatility expected.

There are two main drivers in FX market at the moment: (1) monetary policy divergence – the contrast between US Fed’s expected rate hike and other central banks’ easing bias, in terms of cash rate cut, QE/stimulus and (2) European political risk.

The Reserve Bank of Australia, European Central Bank, Bank of England are all expected to leave their policy unchanged this week. The focus will be on their respective statement and its economic forecast.

• The RBA is expected to maintain their cash rate at 2% after May’s cut. May’s statement was cautiously upbeat however recent data especially capex last week paint a diminishing outlook for Australia. It is likely to keep an easing bias and again make a case of lower AUD – the uncertainty will be whether they will provide any forward guidance (Deputy Governor last month: “we still have scope to lower rates if we need to”)
• The ECB statement and press conference will likely to focus on ECB’s views on current inflation and inflation expectation, and clarification over front loading of its asset purchases (started EUR downtrend past two weeks).
• BOE’s policy is expected to remain unchanged with cash rate at 0.5% and GBP375b asset purchases; if so probably will not issue a statement.

Greece’s saga continues with ongoing negotiation between Greece and its creditors. Greece is due to pay EUR300m to IMF on Friday, part of EUR1.6bn it owes in June.

Friday, we have the always anticipated monthly US employment reports. Yellen’s confirmation of likely rate hike this year and better than expected US data especially CPI have boosted the USD past two weeks, with market pricing in a September lift off. The NFP figure will need to carry that momentum for US Fed to act.

Trading Quote of the Day: “I believe the very best money is made at the market turns” Paul Tudor Jones