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Central banks in focus with BoJ and Fed set to hit the wires

Risk assets were mostly firmer as investors remained optimistic about US earnings and European leaders discussed ways to bolster the Eurozone economy.

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The IMF also downgraded growth forecasts. ECB member Joerg Asmussen was on the wires saying nothing should be ruled out when asked about the possibility of a second LTRO. He also suggested that the ECB has a wide range of non-standard instruments which can be deployed if and when the need arises. Asmussen also said forward guidance communicated by the ECB goes beyond 12 months.

Italy was also slapped with a downgrade by S&P to BBB (from BBB+) as all the negative tape weighed on the single currency. As a result, EUR/USD was under significant pressure and slipped from around 1.285 all the way down to 1.275. The single currency was definitely the highlight of the session as it lost the 1.28 handle.

It wasn’t all bad in the risk currency space as AUD/USD knocked on 0.92 but encountered some resistance at that level. The pair is trading at around 0.917 ahead of China trade balance and Westpac consumer sentiment data today. China’s trade balance is due out at midday today with a 27.8 billion trade surplus expected. Westpac consumer sentiment was up 4.7% in May but we wouldn’t be surprised to see this disappoint given recent disappointing readings for business confidence and job ads.

We are certainly approaching the business end of the week starting with Japan’s monetary policy meeting minutes this morning. The BoJ also kicks off its two day meeting today which will be concluded tomorrow. We also have the Fed to look out for tomorrow morning and many will be expecting clarity on the Fed’s tapering stance. USD/JPY is currently hanging around 101.12 and we suspect it will be in for some volatility heading to the end of the week.

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