The liquidation of USD long positions is continuing ahead of tomorrow’s FOMC interest rate decision, with market participants keen to shrug off disappointing global economic data while focusing on positioning ahead of tomorrow’s announcement. The soft price action of the DXY has the USD-linked index closing in on the lows reached back in mid-March, though still within the range witnessed over the last two months. A continuation of the slide that would push the DXY through to the south-side of the 96 level would increase pressure on the already shaky USD bulls, likely to lead to further capitulation of weaker USD long positions. Also aiding in the downward pressure that is being exerted on the greenback is a resurgence in the euro, with buying interest in EURUSD materializing after the shake-up in Greece’s negotiating team gave markets increased confidence surrounding Greece’s commitment to reaching a deal. Given the animosity from the Eurozone finance ministers towards Greece’s Varoufakis, Prime Minister Tsipras announced yesterday that he would be replacing Varoufakis with Deputy Foreign Minister Tsakalotos as coordinator of the negotiating group. Though the proverbial pig might just be getting a new make-up application, the initial response by participants has been well-received, which is flowing through to the euro as attempts to move back into the low 1.09s against the greenback.
The overnight Asian session kicked off with retail sales out of Japan falling by 9.7% on a year-over-year basis in the month of March, tumbling by a larger amount than the 7.3% decline that had been expected, and the 1.8% drop in February. While today’s dreary consumption figures are unlikely to alter the course of Japanese monetary policy atThursday’s BoJ meeting, it does warn of overall soft Q1 growth, increasing the chances the BoJ will acknowledge the failure of their inflation goal and seek to expand monetary policy to underpin both growth and inflation. Cheaper energy prices have yet to provide a much needed boost to the world’s third largest economy, and while it has been a positive factor for the country’s trade balance figures, the BoJ will likely start to feel the heat if Q1 GDP growth falls short of estimates. Currency markets largely shrugged off the Japanese retail sales numbers, with USDJPY remaining essentially unchanged and pivoting around the 119 handle heading into the North American session.
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