The Central Bank of the Republic of Turkey kept the key interest rate unchanged at 19%, as expected on Thursday. According to the Research Department at BBVA, the worsening inflation outlook and potentially increasing global yields after Wednesday’s FOMC meeting will require the Turkey central bank to be more cautious.

Key Quotes: 

“The Central Bank of Turkey kept the policy rate at 19% in line with the expectations.”

“Given the worsened inflation expectations, the CBRT repeated the need to decisively keep the current “tight” monetary policy stance. Thus we expect an easing cycle only very gradually in late 3Q and end the year with 16% policy rate.”

“All in all, if the potential impact of the reopening in the economy is considered as we confirm with our Big Data demand indicators, the uncertainty increased further on inflation, given the delayed demand and supply – side factors. Therefore, worsening inflation outlook and potentially increasing global yields following the hawkish messages of the FED will require the CBRT to be more cautious, which the CBRT tries to manage right now by trying to eliminate any early rate cut expectations.” 

  • Mexican peso recovers some lost ground versus the US dollar after falling to the lowest since March.
  • USD/MXN flat on Thursday after a pullback from 20.62.

The USD/MXN peaked on Thursday at 20.62, the highest intraday level since late March. It then pulled back amid lower US yields and despite risk aversion. The pair dropped back under 20.50, and it is hovering around 20.35, marginally lower for the day about to post the first negative close since last Thursday.

The outlook now points to the upside, but the rally in USD/MXN calls for some precaution. While under 20.50, the odds of more gains seem limited. A close above the mentioned level would expose the next resistance seen at 20.60, followed by 20.80/85.

The daily RSI is approaching the 70 area, suggesting some consolidation ahead before another potential leg higher. The USD/MXN could trade between the 100-day moving average at 20.25 and 20.55. A slide below 19.95 would negate any upside bias, favoring more losses ahead.

USD/MXN daily chart

usdmxn

 

The June FOMC meeting triggered a sharp rally of the US dollar across the board. Analysts at Rabobank still see the NZD/USD pair at 0.73 in a three-month perspective. 

Key Quotes: 

“Up until yesterday the market consensus was pointing to a moderately softer value of the DXY dollar index over the course of the coming 2 quarters. The price activity in the USD crosses today suggests that a revaluation of positioning is currently taking place. Our existing forecasts for a stronger USD this summer were based on the view that the debate about inflation and Fed policy would heighten in the approach to the Fed’s Jackson Hole symposium. Our expectations for a stronger USD have meant that our forecasts for NZD/USD and AUD/USD have also been trailing the market consensus.”

“With the July RBNZ policy meeting in view we continue to see scope for moderate upside in NZD/USD and we retain a 3 month forecast of 0.73. The release of New Zealand Q2 CPI inflation is not due until July 15, one day after the RBNZ policy review.”
 

  • Loonie under pressure amid lower crude oil and a decline in Wall Street.
  • US Dollar’s momentum remains in place, even as US yields pullback.

The USD/CAD is rising for the fifth consecutive day in a row and is holding onto all gains. It is hovering around 1.2340, near the six-week high it reached on Thursday at 1.2346, boosted by a rally of the US dollar.

The greenback accelerated to the upside after the FOMC statement and projections. The Fed signaling the possibility of rising interest rate earlier than previously expected, triggered a new leg higher of the dollar that is still running. The USD/CAD found resistance at 1.2340/45 for now. It continues to press higher. Above the next resistance is seen at 1.2380 followed by 1.2400.

The odds of a consolidation or a bearish correction arise from the fact that USD/CAD has risen more than 250 pips from the level it had a week ago. No signs are seen at the moment and the bullish tone remains intact.

Economic data from the US came in below expectations with jobless claims rising back above 400K and the Philly Fed falling to 30.7. Still the dollar held onto gains. Not even a retreat in US yields offset the recent strength.

Another negative factor for the loonie and also commodity and emerging market currencies is the decline in equity prices. Investors turned cautious after the FOMC. Weaker stocks mean more demand for safe havens, like the US dollar.

Technical levels

 

The Bank of Japan (BoJ) will announce its Interest Rate Decision and release the Monetary Policy Statement on Friday, June 18 at 03:30 GMT. As we get closer to the release time, here are the expectations forecast by the economists and researchers of five major banks. 

Ahead of the event, USD/JPY has reversed its direction in the second half of the day and was last seen losing 0.45% on a daily basis at 110.20.

See: USD/JPY to test long-term resistance starting at 111.94 above the 110.97 year high – Credit Suisse

CE

“At its June meeting, we think the Bank of Japan may extend the deadline on its emergency lending facility from September to December. Beyond that point, it should further taper its purchases of short-dated debt as it digs in for a prolonged hold.”

Standard Chartered

“We expect the BoJ to keep the policy balance rate unchanged at -0.1% and the 10Y yield target at c.0%. Macro data has shown signs of improvement since the last meeting in April. Q1 GDP growth was revised up, and industrial production and retail sales improved as well. However, economic challenges remain. While Q1 GDP contracted less than the initial forecast, it fell a significant 3.9% on an annualised basis. We expect the BoJ to maintain its accommodative stance until it sees further economic improvement.” 

Danske Bank

“We expect BoJ to hold policy rates and its QQE programme unchanged on Friday, but in light of the service sector still struggling with a state of emergency in big parts of the country, the BoJ will likely extend its special programme aimed at channelling money to cash-strapped firms.”

TDS

“Main focus for the BoJ meeting is whether they extend COVID-19 aid for businesses past the current expiration date of September, with a high probability of such an announcement at this meeting.”

UOB

“We still keep our view for the BoJ to do more and enhance its monetary policy easing further, most likely through re-accelerating its GB to Japanese corporates and SMEs. Market expectations are now tilted to the BoJ having reached the end of the line on normalization and will remain in a holding pattern on policy until at least April 2023 when Governor Kuroda is scheduled to leave the BoJ.”

  • USD/CHF builds on Wednesday’s gains, renews multi-week highs.
  • US Dollar Index preserves its bullish momentum on Thursday.
  • Swiss National Bank left its policy settings unchanged in June.

The USD/CHF pair gained more than 100 pips on Wednesday and continued to push higher on Thursday. After touching its best level since late April at 0.9167, the pair seems to have gone into a consolidation phase and was last seen gaining 0.73% on the day at 0.9151.

DXY is up more than 1% this week 

The broad-based USD strength fueled USD/CHF’s rally in the late American session on Wednesday. The FOMC’s updated Summary of Projections revealed that the number of policymakers who see a lift-off in the fed funds rate from zero in 2023 rose to 13 from seven in March. Additionally, FOMC Chairman Jerome Powell acknowledged that they are not dismissing the possibility of inflation staying high for longer than expected.

Boosted by the hawkish shift in the FOMC’s rate outlook, the US Dollar Index (DXY) gained nearly 1% on Wednesday and stretched to a fresh two-month high of 91.84 on Thursday.

On the other hand, the Swiss National Bank (SNB) announced earlier in the day that it left its policy settings unchanged as expected. Furthermore, the SNB reiterated that the CHF remains highly valued and that it will maintain its expansionary monetary policy.

 Meanwhile, the data from the US showed that the Initial Jobless Claims rose to 412,000 in the week ending June 12. This reading came in worse than the market expectation of 359,000 but failed to trigger a noticeable market reaction.

Technical levels to watch for

 

  • USD/JPY lost its traction after rising to multi-month highs.
  • Falling US Treasury bond yields seem to be weighing on the pair.
  • US Dollar Index clings to strong daily gains above 91.70.

Following Wednesday’s upsurge, the USD/JPY extended its rally and reached its highest level since early April at 110.82. However, the pair reversed its direction in the second half of the day and was last seen losing 0.25% on a daily basis at 110.40.

Despite the unabated USD strength, a sharp decline witnessed in the US Treasury bond yields seems to be weighing on USD/JPY. At the moment, the benchmark 10-year US T-bond yield is down 2.3% on the day at 1.541%.

On Wednesday, the hawkish shift seen in the FOMC’s Summary of Projections provided a boost to the greenback. With the number of policymakers expecting a lift-off in the fed funds rate from zero in 2023 rising to 13 from seven in March, the US Dollar Index (DXY) gained nearly 1% on a daily basis. At the moment, the DXY is up 0.42% on the day at 91.77.

Earlier in the day, the data published by the US Department of Labor revealed that the weekly Initial Jobless Claims rose to 412,000 from 375,000. Nevertheless, this data failed to trigger a meaningful market reaction.

Eyes on BoJ

On Friday, the Bank of Japan (BoJ) will announce its Interest Rate Decision and release the Monetary Policy Statement.

Previewing this event, “We still keep our view for the BoJ to do more and enhance its monetary policy easing further, most likely through re-accelerating its GB to Japanese corporates and SMEs,” said Lee Sue Ann, Economist at UOB Group. “Market expectations are now tilted to the BoJ having reached the end of the line on normalization and will remain in a holding pattern on the policy until at least April 2023 when Governor Kuroda is scheduled to leave the BoJ.”

Technical levels to watch for