Draghi Speech, No change

April 8, 2016

FX News Today

JPY Remains Centre Stage: The surging yen continued yesterday and into the US open before giving up some of its strong gains over night, but the momentum and sentiment is clearly still with the YEN. The USDJPY traded to a low of 107.82 a figure not seen since October 2014 (just before the BOJ increased its QE programme substantially). EURJPY fell to a low of 122.56 and the GBPJPY 151.89. There were public pronouncements from Chief Cabinet Secretary Yoshihide Suga again yesterday that “We’re watching the foreign exchange market with a sense of tension,” adding that “the government believes excessive and disorderly movements in the exchange rate have a negative effect.”. However, with Japan hosting the next G7 meeting next month it’s unlikely (but far from certain) that the BOJ will intervene to weaken the surging currency. Only time will tell.

German trade surplus widens as export growth picks up. Germany posted a  (sa) trade surplus of EUR 19.7 bln in February, up from EUR 18.7 bln in January, with exports rebounding 1.3% m/m, after the -0.8% m/m drop at the start of the year. Import growth meanwhile moderated to 0.4% m/m from 1.3% m/m. Accumulated data for the three months to January still show a decline in the three months trend, which confirms that the overall economy cannot rely on net exports to generate growth, as global headwinds get stronger. Unadjusted data show a slight widening of the current account surplus in the first two months of the year, compared to 2015, but the trade surplus is narrowing.

European Outlook: Asian stock markets were mixed overnight. Japanese markets improved as the Yen finally eased. Oil prices moved higher with the front end Nymex futures now slightly above USD 38 per barrel. US and UK stock futures are also posting gains, and risk appetite seems to be returning. ECB officials left the door to further easing measures wide open yesterday, even if they try to squash speculation of Helicopter money. Fed Chair Yellen also repeated that she sees some remaining slack in the labour market, although hawk George warned against delaying further hikes. In the Eurozone the flaring up of Grexit fears is pushing out yield spreads once again and causing further headache for Draghi. There is more ECBspeak on the calendar from Nowotny and Mersch today. UK publish trade data and there are also production figures from the U.K. and France alongside Swiss inflation numbers.

Draghi Speech, No change:  ECB doesn’t have shortage of available tools. The ECB President said the March 10 measures will further support price stability and help maintain the trust in the currency. At the same time, he stressed once again that all actors need to play a role in the recovery of the Eurozone and that fiscal rules shouldn’t be stretched beyond credibility. He also said that there is no case for unraveling past reforms in Europe. Nothing really new there, although with the ECB reducing market pressure on governments to implement and stick with reforms, the central bank’s calls on governments have so far had little impact.

Main Macro Events Today

UK Industrial Production  

UK Industrial production is expected to slow 0.1% m/m from 0.3% m/m. Showing continued shrinking for UK factory output, even with a depreciating GBP demand particularly form Eurozone countries remains very weak. More evidence of a tough first quarter and sluggish global demand.

Canadian Unemployment

The March employment report is expected to show a pick up in jobs to 10.4k but the unemployment rate to remain steady and unchanged at 7.3%.

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