Market reviews

All eyes are on the FOMC later today. A 25bp rate hike is nailed on so the focus will be on what Chair Powell has to say, both in the statement and his press conference.

Strap yourselves in for a pivotal week in financial markets as we get rate decisions by the Fed, ECB and the BOE all within 18 hours or so of each other.

The world’s premier reserve currency continues to languish near its recent lows with price action remaining relatively rangebound and choppy so far this year.

Although USD/JPY is now trading back above the psychologically-important 130 level, at least Yen bulls may take heart from the fact that this FX pair remains firmly in the downtrend that began back in October.

Among all G10 currencies, the Japanese Yen has so far seen the best start to 2023 against the US dollar which has seen broad-based weakness so far this year.

FX markets are in consolidation mode ahead of the key risk event of the week, tomorrow’s US inflation data release.

A lower-than-6.5% CPI print later this week may see this equally-weighted USD Index submerging into sub-1.16 territory for the first time since August, while likely sealing a “death cross” – where its 50-day simple moving average (SMA) crosses below its 200-day counterpart.

The greenback has kicked off 2023 by trying to stabilise above recent lows set in the dying days of last year. It suffered heavy losses for the most part of the prior quarter en route to still posting an advance of around 9% on the year.

Holiday markets have seen narrow ranges in the forex space as traders watch the unfolding reopening of the Chinese economy whilst keeping the other eye firmly on rising Treasury yields.

We wrote yesterday about today’s Bank of Japan meeting and how there could be a possible shift in policy which would have big implications for the yen. But we didn’t expect this to happen until potentially after Governor Kuroda’s term had expired in April next year.

Following last week’s central bank bonanza, this week’s main event will be Tuesday’s Bank of Japan meeting, even as markets wind-down towards the end of a tumultuous year.

The greenback is now down over 9% from its multi-year highs seen in late September as markets bet on the Fed pivot and smaller rate hikes, starting from this evening’s FOMC meeting.

It’s an absolute blockbuster of a week for both central bank meetings and top tier economic data.

The CAD has been driven recently by softer oil prices and subdued risk sentiment.