The brand new week wraps with the G3 central banks FOMC (Wed), ECB and BOJ (Thu) monetary policy meetings.

Central bank meetings: Ahead of the three central bank meetings USD, EUR and JPY crosses need more attention.


  • Weak economic data vs Better data
  • Hawkish hold vs Neutral hike
  • Euro favors dip buying vs dollar’s limited upside risk

Hawkish hold:

Recent Italy turmoil and the saga of weak economic data would push the policy normalization till the end of 2018 at least. The ECB began to be shrinking the net asset purchase in Jan 2018 from 60Bn euro to 30Bn euro.

We are more focusing on the ECB’s macro projection in June 14 meeting. Recent Italy political turmoil would shift the ECB to wait and see approach for short time. The macroeconomic projections cover the outlook for the euro area, in particular with regard to GDP and inflation.

GDP rose by 0.4% in both the EA and the EU during the first quarter of 2018, compared with the previous quarter, according to an estimate published by Eurostat.

A recent set of inflation data revealed Euro area annual inflation is expected to be 1.2% in April 2018, down from 1.3% in March 2018, according to a flash estimate from Eurostat.

The ECB’s preferred inflation measure HICP is expected to be 1.9% in May, up from 1.2% in April 2018, according to a flash estimate from Eurostat, the statistical office of the European Union.

HICPs are used for the assessment of the inflation convergence criterion as required under Article 121 of the Treaty of Amsterdam and by the ECB for assessing price stability for monetary policy purposes. The ECB defines price stability on the basis of the annual rate of change of the euro area HICP. Source: eurostat

“We expect a moderate downward revision in the ECB growth projection (for 2018, not for 2019/2020) and upward revisions to the inflation forecast for 2018/2019, but not for 2020 (1.7%) “according to UBS.

Post last week’s Peter Praet remarkable speech, the hawkish odds have been elevating gradually but still on a cautious note. Based on his speech at the Congress of Actuaries, Berlin we expect the probability of policy change is growing bigger either in next week’s meeting or in July

According to Peter Praet, Member of the Executive Board of the ECB said: “ Next week, the Governing Council will have to assess whether progress so far has been sufficient to warrant a gradual unwinding of our net purchases.”.

Regarding inflation Peter said, “Signals showing the convergence of inflation towards our aim have been improving, and both the underlying strength in the euro area economy and the fact that such strength is increasingly affecting wage formation supports our confidence that inflation will reach a level of below, but close to, 2% over the medium term”.

The FOMC meeting outcome is widely expected to be hawkish in June 12-13 meeting. As we pointed in our earlier article, we remain to our forecast, “expect four Fed hikes in 2018, but more confirmation will be available at the June meeting”. The dollar bullishness cast on the clues regarding further tightening later this year.

FX : We forecast EURUSD (buying the dip), EURJPY (Neutral) and USDJPY (Neutral) in the Q2.

Especially in EUR crosses EURJPY (limited upside), EURGBP (remained in a tight range) and EURCHF (buying the dip at 1.13) favors the trend.

Chart of the day: EURUSD

Read: Global economic calendar (June 11-15)

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