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Fundamental Morning Wrap: Boston horrors overshadow Golds collapse

FXstreet.com (Barcelona) - This mornings institutional research comes on the morning after the horrific events at the Boston marathon yesterday and has been relatively thin in substance. Eyes remain on JPY ahead of the G20, this mornings European data has also been in the spotlight, while yesterday´s Gold collapse has also been in focus.

JPY

Danske Bank analysts note that the BoJ´s aggressive monetary easing has got a lot of attention in the media this week ahead of the G20 meeting in Washington. They add, “Yesterday ECB’s Mario Draghi also joined the debate saying that the increased stimulus announced by the Bank of Japan is determined by domestic policy considerations and that there is no currency war”. Lee Hardman of BTMU believes that the combination of rising global growth concerns which prompted heavy selling of commodities, and apparent terrorist attacks in Boston have triggered a yen short squeeze in USD/JPY. He adds, “The pick up in investor risk sentiment in the near-term has supported traditional safe haven currencies such as the yen. It has caught the market somewhat by surprise following quickly on the heels of the BoJ’s shift to more aggressive easing which had intensified investors’ bearish outlook for the yen and bullish outlook for riskier assets.”

EUR

Danske Bank analysts note that Greece has come to an agreement with the Troika over the distribution of the latest EUR2.8 bln aid tranche. Martin van Vliet of ING notes that Eurozone inflation fell to 1.7% despite the rise in the core rate, and states, “With the growing risk that the ECB will undershoot its medium-term target of inflation of just below 2%, the probability of an ECB rate cut arguably is rising. But given Draghi's recent remark that the consensus was for the time being not to look at rates, we are not fully convinced whether the ECB will actually pull the trigger on rates.” Carston Brzeski of ING comments on the German ZEW miss, noting that “With anti-euro and a return to the D-Mark ideas finally having a voice in Germany’s political arena, chancellor Merkel and her government are most likely to continue their strict stance of conditional integration, rather than easing it.”

Macro

In response to yesterday's Gold sell off, Gareth Berry and Geoffrey Yu of UBS ask whether the FX market should be concerned. In conclusion, they believe that the market should not overreact at this stage. They state, “If China’s Q4 GDP numbers had not come out this weekend, gold may have suffered a similar decline while AUDUSD would have maintained last week’s solid performance.” They accept that it is important to watch correlations and if there is convergence between gold, inflation expectations, risk FX and broader commodity indices, it would be a sign that some form of stress is rising. They write, “After all, with central banks having already compressed risk premia so aggressively, the risk/reward in pricing in their collective failure in this endeavour is bound to extremely high.” Lee Hardman of BTMU writes, “The sharp sell off in the price of gold, which recorded its largest decline over the last two day in 30 years, has also likely spooked some investors who see it as a potential canary in the coal mine signal for financial stability ahead.”


In response to the horrific Boston bombings last night, Danske Bank analysts note that financial markets have responded relatively calmly to what appears to be a terrorist attack which killed three people and injured over 100.

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