BoJ futility continues, ECB seen as dovish

The G-10 rundown

USD – an important test of USD resilience over the ECB and whether ECB shift to a more cautious outlook engineers a EURUSD sell-off or if this is largely priced in. Otherwise, watching for USD responsiveness to possible weaker risk sentiment.

EUR – the ECB is the near term event risk – with a bit of interest over the Euro Zone flash Jan. PMI’s tomorrow morning as well. The ECB’s rate hike guidance surely in for a revision, and the market will look for whether this meeting looks like a setup meeting for new easing – Bloomberg and others are discussing the potential for a new TLTRO – as early as March, should the incoming data support this notion. The German ZEW survey of current conditions cratered to 27.6 for January, its lowest since January 2015.

JPY – the yen eases lower again overnight on the BoJ inflation forecast adjustment, but if weak risk appetite continues and US yields head lower again, JPY crosses may trade heavily again – still, JPY implied volatility continues to get crushed after the huge December-early January spike. USDJPY one-month implied went from below 6% in mid-December to spike above 10% over the JPY flash crash and is now back below 7%.

GBP – sterling continues to find resilience as May’s own cabinet is at war over whether to use the threat of a No Deal as a leverage in negotiations with EU counterparts. Consensus increasingly swinging to avoidance of a No Deal, which could at least support GBP toward the bottom of the EURGBP range if the ECB sufficiently dovish.

CHF – GBPCHF poking at the 200-day moving average again – this has been a key indicator for that pair stretching back to a year or more, so stay tuned.

AUD – the Aussie in for a weak session yesterday, but plenty of headline risk and the low volatility in USDCNY likely an obstacle in interest to trade AUD until we get a sense of the US-China trade negotiation outcome.

CAD – USDCAD doesn’t look to be the highest beta play on USD direction. Canada Retail Sales up today. The downside break level in USDCAD (sub-1.3200 lows) will soon converge with the 200-day moving average.

NZD – massive NZD rally versus AUD on the CPI print – far in excess of the implications from the modest upside surprise on that inflation gauge (2-year NZ yields up less than two basis points from two days ago). As important was likely a recent shift in positioning on technical considerations and hopes for a US-China trade deal that were partially dashed yesterday. Australia’s economy is far more leverage to exports to China than New Zealand’s. 

SEK – SEK not moving here as we await a catalyst – not helpful at the margin for SEK bulls if risk sentiment suffers further.

NOK – a weakening of risk sentiment and oil prices – which have often been correlated of late – could set in motion a minor NOK long squeeze – certainly frustrating for EURNOK bears that the 9.75 pivot area wasn’t taken out quickly on the recent attempt – risking a further tactical consolidation. Norges Bank up tomorrow – no drama expected.

Upcoming Economic Calendar Highlights Today (all times GMT)

• 1330 – Canada Nov. Retail Sales
• 1500 – US Jan. Richmond Fed Manufacturing
• 1500 – Euro Zone Jan. Consumer Confidence
• 0030 – Australia Dec. Employment Change / Unemployment Rate