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Big Week for EURO & USDJPY

  • Kathy Lien
  • 10 December 2019

Big Week for EURO & USDJPY

 

Daily FX Market Roundup 12.09.19

 

By Kathy Lien, Managing Director of FX Strategy for BK Asset Management

 

The holidays may be approaching but there's at least at least one more week of potentially big moves for currencies before we settle into the seasonal lull.With two monetary policy announcements and a big decision on tariffs for US President Trump, an expansion in volatility is almost a certainty. It's a particularly a big week for EUR/USD and USD/JPY. Both currency pairs saw very little moves on Monday but as the week progresses, breakouts are expected. For the euro, Christine Lagarde will be overseeing her first monetary policy announcement as ECB President. She's spoken a number of times since taking office but has kept her policy views close to the chest. Sharing her outlook will be unavoidable at this month's press conference and chances are she'll opt to maintain status quo at her first meeting. We know the ECB believes that policy needs to remain accommodative and governments need to do their part to boost the economy. Germany may have avoided recession but inflation is low and growth is slow. For all of these reasons, there's very little benefit to Lagarde to rule out further easing. The economy is just beginning to take a turn for the better but its deep in the woods so for the central bank head, it pays to see if the recovery continues before shifting the central bank's course dramatically. This is especially true if President Trump fails to a make a decision on the next round of Chinese tariffs before the ECB meeting.

 

For USD/JPY Trump's decision on the next round of Chinese tariffs, which is scheduled for December 15th overshadows the Federal Reserve's last meeting of the year but that only assumes it happens this week.Trump could decide to make the announcement after the markets close on Friday at which point the reaction will be the following week. This scenario is very likely if he decides to move ahead and impose tariffs. The Federal Reserve and the European Central Bank are widely expected to leave policy unchanged and for both central banks, guidance is key. In the case of the Fed, most policymakers do not feel that additional easing is necessary and Friday's blowout non-farm payrolls report validates their views. The President wants the Fed to continue lowering interest rates but data has been good and the central bank could opt to focus on the improvements in the economy. So, as long as Trump does not announce that more tariffs are coming for China on December 15th before Thursday, the risk is to the upside for the greenback.

 

The US dollar started this new trading week higher against most of the major currencies but the rally has been cautious ahead of this headline driven week.Unfortunately the market is as clueless as we are on Trump's decision which makes it this week's biggest risk. Aside from FOMC, US inflation and retail sales numbers are also scheduled for release. If the Fed is optimistic and the Trump administration does not lead the market to believe that the tariffs are on, USD/JPY will trade above 109. However if the White House gets tough on China, then good data or Fed optimism won't help USD/JPY.

 

In contrast to the gains enjoyed by euro, sterling and USD/JPY, the Australian and New Zealand dollars traded lower on the back of softer Chinese trade data.Exports continue to feel the pain from tariffs and the fear is that the toll will grow exponentially if tariffs increase further this month. It will be interesting to see if Reserve Bank of Governor Lowe finds any of this concerning when he speaks tonight. The last RBA statement was not as dovish as investors had anticipated but US-China trade relations chilled since then.

 

 

 

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About the Author
Kathy Lien
Kathy Lien is Managing Director and Founding Partner of BKForex. Having graduated New York University’s Stern School of Business at the age of 18, Ms. Kathy Lien has more than 13 years of experience in the financial markets with a specific focus on currencies

Ms. Kathy Lien is Managing Director of FX Strategy for BK Asset Management and Co-Founder of BKForex.com. Her career started at JPMorgan Chase where she worked on the interbank FX trading desk making markets in foreign exchange and later in the cross markets proprietary trading group where she traded FX spot, options, interest rate derivatives, bonds, equities, and futures.

In 2003, Kathy joined FXCM and started DailyFX.com, a leading online foreign exchange research portal. As Chief Strategist, she managed a team of analysts dedicated to providing research and commentary on the foreign exchange market.

In 2008, Kathy joined Global Futures & Forex Ltd as Director of Currency Research where she provided research and analysis to clients and managed a global foreign exchange analysis team. As an expert on G20 currencies, Kathy is often quoted in the Wall Street Journal, Reuters, Bloomberg, Marketwatch, Associated Press, AAP, UK Telegraph, Sydney Morning Herald and other leading news publications.

She also appears regularly on CNBC’s US, Asia and Europe and on Sky Business. Kathy is an internationally published author of the bestselling book Day Trading and Swing Trading the Currency Market as well as The Little Book of Currency Trading and Millionaire Traders: How Everyday People Beat Wall Street at its Own Game all published through Wiley. Kathy’s extensive experience in developing trading strategies using cross markets analysis and her edge in predicting economic surprises serve key components of BK’s analytic techniques.