Greenback tumbled in most pairs, with exception on EUR/USD and USD/JPY. It seems market players are more concerned on the divergence of direction among central banks than mere NFP.

Pressures on Euro post-ECB Meeting last week continue to go on even after US NFP fell lower than estimated. Greenback tumbled in most pairs, with exception on EUR/USD and USD/JPY. It seems market players are more concerned on the divergence of direction among central banks than mere NFP. Last week, markets are distracted by ECB dovish speech; this week, it's going to be BOJ, The Fed, and BOE. What could we look forward to?

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ECB - Stimulus Or Not?

This morning (7/4) Reuters mentioned that a day after ECB Governor dovish speech, German newspaper Frankfurter Allgemeine Zeitung reported ECB have mapped the effect of a trillion euros asset buying to avert deflation. It indicates that ECB may have lost patience over Eurozone and is planning to loosen monetary policy. Such dovish move commonly known to weaken currency rate.

Nevertheless, there are doubts whether ECB is really going to tread that way. Boris Schlossberg from BK Asset Management said that ECB would clearly prefer for the EZ economy to recover through organic demand rather than any further stimulus action and as long as the EUR/USD rate remains below the key 1.4000 mark, the ECB may be content to remain stationary for the time being.

 

BOJ - Will There Be Extra Stimulus?

Consumption tax hike from 5% to 8% have officially started on April 1 in Japan. It is one of Abenomics plans to boost prices and drive inflation. Alas, market players are pessimistic over this plan.

Previously, economist have warned that price hike will likely make people unwilling to spend and consequently, disturb inflation target. Philip Brasor of The Japan Times also mentioned some other possibly negative scenario after tax hike. First, consumption boost in recent month could mean that people have stocked in preparation of price hike, which will result in lower consumption in the coming months. Second, because small companies are afraid that their customers are going to turn away, they tend to absorb the tax increase instead of charge it on consumer prices. Ballooning cost might actually push a lot of small companies out of business.

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Forex market too, concerned on this point. Osamu Takashima of Citigroup Inc. said that the market probably see tax hike as negative influence on Yen because BOJ might have to loosen monetary policy again to limit the destruction caused by the hike, and that is what pressuring JPY. So, the question is, will BOJ implement additional stimulus? For now, it seems too early to say. Most probably next BOJ meeting on Tuesday will hold on to the current policy.

 

The Fed - When Rate Hike Will Be?

This week The Fed is going to publish last month FOMC meeting minutes. At the time, Fed Governor Janet Yellen explicitly mentioned the likelihood of rate hike approximately six months after tapering ends. However, a week ago She changed tune and said that US economy may need support for some time. As the result of the uncertainty, the market became more interested in the answer of When rate hike will be? than about the continuation of QE taper.

Will it be talked about in FOMC meeting minutes? It is hard to guess. What we know is that if there is a word on rate hike timing, then the impact will be hard on forex, stocks, and commodities. Or else, they will go back to the divergence of directions among central banks. The more dovish the bank's prespective, the more bearish the currency outlook. On the contrary, hawkish signal will encourage people to buy.