Market Movers Today
It is a very thin calendar today with the only release being US building permits and housing starts in June. Both figures have been on a downward trend for most of this year after being on strong upward trends since 2011. That said, consensus is for an increase in both building permits and housing starts in June.
Before European markets open on Wednesday morning, the Bank of Japan (BoJ) is due to announce its monetary policy decision. We expect the BoJ to keep its ‘QQE with yield curve control’ policy unchanged, which is widely expected, especially after earlier this month it demonstrated its strong commitment to yield curve control by announcing an unlimited fixed-rate purchase of 10Y JGBs. The announcement should not have any significant impact on price actions. See Bank of Japan preview: BoJ’s accommodative policy not about to change, 17 July 2017.
Selected Market News
EUR/USD continued the move higher during yesterday’s trading session and rose above 1.158 briefly. The loss of momentum at the end of the day is consistent with positioning, shortterm valuation and technical factors. The next pivotal event for EUR/USD is the ECB meeting on Thursday, when we expect it to deliver only a minor hawkish twist. Despite the break of 1.15, risks for EUR/USD are probably still skewed to the upside in the case of a more hawkish ECB. For more about the recent move higher in EUR/USD and its outlook.
The ECB’s staff is currently examining scenarios for the future path of QE including the announcement of a tapering path, an extension of asset purchases at a reduced pace and a combination of strategies, according to Bloomberg. The unnamed sources also said that ECB officials have limited appetite for any significant change in their language for now, which could tighten financial conditions and undermine the ongoing recovery. The recent surge in the effective EUR could spark some concerns among ECB members but, so far, the tapering speculations have not reversed the continued spread tightening in the periphery with 10Y Spain versus Germany decreasing yesterday to below 100bp for the first time since H2 16.
