The Fed and the ECB did not disappoint – both banks delivered expected changes in monetary policy and caused quite a moves on the foreign exchange market. The US dollar has been a clear winner in December thus far and the largest gains have been scored against the Japanese yen. Interestingly, the BoJ meeting is the final one among major central banks before Christmas. On top of this, we will have an interesting data flow until Friday, so stay tuned.
The Bank of Japan meeting (Tuesday)
The USDJPY surged from a low of 101.18 on 9th November to above 118. That’s a staggering 17% in just over 5 weeks! Both the Fed and the BoJ had a lot to do with the rally. While the US central bank pushed Treasury yields higher with their hawkish message, the BoJ kept JGB yields at bay. A resulting surge in interest rate spread was a chief reason behind the rally on USDJPY. In our view, the BoJ is more than happy with this situation and while there are rumours that the Bank could consider less accommodative policy in 2017, this is highly unlikely to occur this week. Yet, the BoJ is unpredictable and certainly worth watching. The decision has no time of release but it’s usually out between 3 and 5am GMT.
US data: Existing Home Sales (Wednesday, 3pm GMT), PCE Inflation and Durable Orders (Thursday, 1:30pm GMT) and New Home Sales (Friday, 3PM GMT)
Every and each report from the US economy will be highly scrutinized following the FOMC meeting. Yes, the message was hawkish and the US dollar has appreciated but now the economy must live up to expectations. Traditionally, the PCE inflation data is among the most important reports but a strong home sales or durable goods reports could be a boon for the US currency as well.
Macro data from Canada: Inflation and Retail Sales (Thursday, 1:30pm GMT), Monthly GDP (Friday 1.30pm GMT)
The Canadian dollar had fared very well until the FOMC on the back of higher oil prices but the meeting was a turning point on USDCAD. A pullback in oil prices and dismal manufacturing data did not help the Canadian currency in that situation. While the focus is on the US rates and the dollar, the data from Canada might help determine to what extent the pair may advance.
Monday is quite interesting as well with Ifo index from Germany, flash PMI from US and Yellen speaking in the evening. Riksbank meeting (Wednesday).