FUNDAMENTAL ANALYSIS British Pound
EUR Spot:
Implied Volatility:
Median Forecast Bloomberg Survey:
$1.1218 5.4%
$1.1315
One-Month Forward Indication: $1.1246 Japanese Yen
Japan’s economy contracted in H2 18 and does not appear to have found much traction. However, there seems to be little appetite to provide more stimulus either the government or the Bank of Japan. The government has adopted a series of incentives that were designed to offset the economic impact of the sales tax increase (from 8% to 10%) in October, so the bar to postpone the tax again seems high. The yen appears
to
be more sensitive to global bond and equity moves. The central bank faces a significant operations
challenge that may weigh on the yen late in the month. The holiday around the abdication of Emperor Akihito will shut the government and businesses (including banks) from April 27 through May 7. This is an unprecedented long holiday. It will skew economic data for some time. The BOJ will likely inject massive amounts of liquidity into the system, and several market segments, like banks, funds, and life insurers are candidates to raise hedge ratios, with the scar tissue still raw from the January flash when the dollar fell a few percentage points quickly.
YEN Spot:
Implied Volatility:
Median Forecast Bloomberg Survey:
JPY110.86 5.9%
JPY110.57 One-Month Forward Indication: JPY110.55
For the past 18 months, the UK had been expected to be out of the European Union by now. One of the remarkable developments over these months is how united Europe seems and how divided the UK appears. Arguably the UK invoked Article 50 prematurely without working through some critical but difficult issues, like its obligations under the Good Friday Agreement. There may have been a majority to leave, but it was never clear when and how. The key date now is April 12. Having rejected the Withdrawal Bill three different times, like some kind of medieval test, the UK has little choice but to negotiate a longer extension, and participate in the EU elections or leave without an agreement. April 12 was not an arbitrary date. It is the last day for the UK to enter the EU Parliament elections at the end of May. The longer and softer the Brexit, the better sterling may respond.
GBP Spot:
Implied Volatility:
Median Forecast Bloomberg Survey:
$1.3035 12.9%
$1.3157 One-Month Forward Indication: $1.3055 Australian Dollar
The Australian dollar was little changed in March, which means that it held up better than most major currencies
last month. FX TRADER MAGAZINE April - June 2019 9
FX
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