Central-Bank Chiefs Under 1 Roof

Central bank chiefs gather under one roof

Today, Fed Chair Janet Yellen, ECB President Mario Draghi, BoJ Governor Haruhiko Kuroda and BoE Governor Mark Carney will all participate in a policy panel in Frankfurt. The topic will be challenges and opportunities of central bank communication and as such, some remarks on the respective policies of each bank appear quite likely. If indeed we get such comments, we would expect each chief to reiterate the stance of their Banks, more or less.

Kicking off with the Fed, Chair Yellen could reiterate that the economy is performing relatively well, and that the recent short-fall in inflation is likely to be transitory. Overall, we expect her to maintain a neutral-to-optimistic tone and keep the prospect of a rate hike in December firmly on the table. Although a December hike is almost fully priced in by now, her optimistic comments could bring forth expectations with regards to the first rate increase in 2018 and thereby, prove somewhat positive for USD. Meanwhile, we see the case for BoJ’s Kuroda to be on the opposite side of the spectrum and hint that the BoJ will probably keep its ultra-loose policy framework in place for an extended period of time, in line with recent communications. Although such comments will hardly be a surprise for any investor, we still believe that they could prove slightly negative for the yen. In combination, an optimistic tone from Yellen and a dovish one by Kuroda could push USD/JPY higher today, we think. As for Draghi and Carney, they are likely to appear neutral, as there haven’t been any major economic updates in neither the Eurozone nor the UK since the latest ECB and BoE meetings.

USD/JPY has been trading in a consolidative manner since the 9th of November, between the support of 113.10 (S1) and the resistance of 113.70 (R1). At the time of writing the pair is testing the 113.70 (R1) barrier. An optimistic stance by Yellen today, combined with a dovish narrative by Kuroda, could prove the trigger for a break above that hurdle. Something like that may pave the way for the critical zone of 114.30 (R2). That barrier has been acting as the upper bound of the longer-term sideways range that’s been in place since the 15th of March. As such, although the pair could edge north today, we prefer to wait for a clear close above 114.30 (R1), before we get confident that the broader outlook may have turned to positive.

As for the rest of today’s highlights:

In terms of data, all eyes will be on the UK CPI prints for October. The forecast is for both the headline and the core rates to have risen even further above the BoE’s 2% target, to 3.1% yoy and 2.8% yoy respectively. Indeed, the nation’s Markit services PMI showed inflation reaching a six-month high in October, supporting the case for further acceleration in inflation. Even though an increase in the CPI rates could support the pound on the news, we doubt that it will have much impact on the BoE’s policy, considering that in its November Inflation Report, the Bank noted that it expects the CPI rate to have peaked in October.

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EUR/GBP edged north yesterday, breaking above the resistance (now turned into support) barrier of 0.8880 (S1). Nevertheless, the rate fell short of reaching the 0.8935 (R1) barrier. It found resistance slightly below it and then it retreated to test the 0.8880 (S1) level as a support. Today, we get the UK CPIs, which are expected to have accelerated. This could cause the pair to tumble back below 0.8880 (S1), but given that this is in line with BoE’s expectations, we don’t expect the move to be massive. We believe that the continued delays and uncertainty surrounding the Brexit negotiations are likely to overshadow monetary themes for now. As such, we expect the pair to turn up again soon and perhaps aim for the 0.8935 (R1) level. Having said all these though, the pair remains within the sideways range between 0.8750 (S3) and 0.9020 (R3). So, even if the pair turns up in the next few days, we still see a flat near-term technical picture.

We also get CPI prints for October from Sweden and the consensus is for both the headline and the underlying inflation rates to have pulled back. Slowing inflation could spur speculation for a more pessimistic tone by Riksbank policymakers in the future and thereby, weigh on SEK. In Norway, GDP data for Q3 are expected to show a slowdown in economic growth. In Germany, the ZEW survey for November is due out, while from Eurozone we get the 2nd estimate of GDP for Q3. In the US, the NFIB small business optimism index and PPI figures for October are due for release.

Besides Yellen, Draghi, Kuroda, and Carney, we have four more speakers on the agenda. In Eurozone, we will hear from ECB Executive Board members Sabine Lautenschlager and Benoit Coeure. In the UK, BoE Deputy Governor Jon Cunliffe will step up to the rostrum while in the US, Atlanta Fed President Raphael Bostic will deliver remarks.

USD/JPY