Forex Top Team

Adjustment-driven timing, ahead of next week’s FOMC

Today, the Nikkei average is experiencing volatile trading, which is typical for SQ (Special Quotation) week. There was a moment when it dropped by 700 yen, marking the largest decline of the year. There is also a partial reversal in yen-selling positions for USD/JPY and cross-yen pairs. However, it doesn’t seem that risk aversion sentiment is particularly high. Although tensions between Ukraine and Russia escalated with the dam explosion in the Luhansk region of southern Ukraine in the overseas markets yesterday, the reaction in the stock markets has been muted. It is important to monitor the adjustment movements in the yen market in the subsequent overseas sessions.

The scheduled economic indicators include the US MBA Mortgage Applications (May 27 – June 2), US Trade Balance (April), Canada International Merchandise Trade (April), Canada Labor Productivity (Q1 2023), and Canada’s Central Bank Policy Interest Rate (June). Regarding the Bank of Canada, market views are divided between no change and a potential rate hike. The unexpected rate hike by the Reserve Bank of Australia on the previous day may have tilted market sentiment toward the possibility of a rate hike. While the Canadian dollar has been weak in the Tokyo market due to yen and US dollar strength, there is speculation that rate hike expectations could provide support in the subsequent overseas markets.

In terms of speaking events, there are several scheduled events involving ECB officials, such as De Guindos, ECB Vice President, Knot, President of the Netherlands Central Bank, Panetta, ECB Executive Board Member, and Vujčić, Governor of the Croatian National Bank. However, the focus of these events seems to be on topics such as EU Green Week and financial literacy, and there may be limited new insights regarding interest rates and economic outlook.

The main focus for today is the Bank of Canada Policy Interest Rate. It will be important to see how the Canadian dollar reacts to this announcement. Depending on the statement, if there are expectations of a rate hike, we may see some selling pressure if a rate hike does not materialize.