Volatility was seen in US bond markets yesterday, after the policy statement following the latest FOMC meeting brought yields in the 2-year bond 35 basis points higher and the 10-year bond tested the much-watched 2.15% level. US Treasuries are highly correlated with the USD/JPY and yesterday’s activity pushed the pair (and the US Dollar in general) higher on the session. The USD/JPY hit a new 52-week high at 83.30 as the respective central banks are showing contrasting policy biases and the upward trend in the USD/JPY looks to be supported on dips as a result of this.
The FOMC policy statement was notably more optimistic on the economy, citing an improved labor market and an expectation for “moderate growth” in the longer term. In addition to this, the “slowing in global growth” language that was seen in the previous statement was removed and there was no suggestion of additional rounds of quantitative easing. The 2014 interest rate policy, however, was reaffirmed as the central bank still expects to leave interest rates at their current level for the long term. Ahead today, we will have the monetary policy meeting from Norges Bank in Norway, with no rate change expected.
In Europe, the focus will be on macro data, with the Eurozone Consumer Price Index (CPI), Industrial Production and Swiss ZEW scheduled for release. In the UK, there is also a variety of releases, with Jobless Claims and Claimant Count, ILO Unemployment numbers, and Average Hourly Earnings on schedule. Corporate earnings will be seen from Tullow Oil, Smith’s Group, and Yule Catto & Co. US macro data, however, is mostly second tier, with the Current Account Balance, Import Prices, and MBA Mortgage Applications out during the New York session.
Yesterday’s macro data showed that US Retail Sales rose to its highest level in 5 months during the month of January. In Australia, the Westpac Consumer Confidence survey dropped 5 percent during the month of March (after the 4.2 percent rise in February). Australian Housing Starts dropped 6.9 percent (seasonally adjusted) during the fourth quarter of 2011, which is suggestive of continued weakness in the real estate market give the 5.8 percent drop that was seen in the third quarter of 2011.
The USD/JPY has seen a sharp rally off of support in the low 76 area, and there has been virtually no retracement during the rally thus far. Longer term, this activity bodes very well for the pair and suggests much higher levels going forward, but long positions at this stage are unnecessarily risky and bulls should wait for pullbacks to get in at better prices. The first potential buy level comes in at 80.50, which is a previous congestion area, a downside break here will take pressure off of the topside.
Gold has seen some bearish activity with prices failing at resistance in the 1800 area and prices have since dropped 150 points lower. We are looking at the next major Fibonacci retracement level (now seen at 1630) as the next potential buy zone. Resistance has now moved down to 1715 and an upside break here will put the previous highs back in focus. Watch for bounces at current levels, however, as we could see some support at the 200 day EMA