EUR/USD – NEUTRAL BIAS – Near-Term Range (1.0300-1.0700)
With all the major macro events now behind us there is little we can see on the horizon through to year-end that will spark a spike in volatility. Of course during these periods when low volumes are going through the market, we can’t rule out unexplained moves but the likelihood at this stage is that market activity will remain subdued now until London returns fully on Tuesday 3rd January. The one topic that could get some attention and prompt some volatility is the banking sector bail-out that is proceeding in Italy. Market reaction has been negligible to this point mainly because most expected a state-sector bail-out to be the end game while Finance Minister Padoan’s reassuring words on protecting household savers from suffering losses has also helped limit market reaction. Still, this issue does have the potential to spark euro selling if concerns rise over retail investors taking a larger hit than currently assumed. Anger is already high as seen by the referendum result and any notable hit to savers would help reinforce Five Star Movement’s popularity and raise concerns over political upheaval in Italy next year.
USD/JPY – NEUTRAL BIAS – Near-Term Range (116.00-119.00)
USD/JPY has risen, supported by strong demand for USD cash funding and USD/JPY buying after the Fed’s rate hike last week. Looking forward, the tightness in the USD cash market may ease as market participants are able to cover their cash funding demand close to the end of the year. The upward pressure on USD may moderate slightly. Also USD/JPY buying by speculators and JPY selling by Japanese investors may slow down. Over the near-term, USD/JPY may rise further given Trump’s expansionary fiscal plans and Kuroda’s YCC monetary operations.
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