Afternoon analysis 27.04.2016

After the Federal Reserve meeting, investors are expected to focus on signals from the BoJ. New surveys may again raise concerns about Brexit. The zloty remains at around 4.40 per euro and 4.00 per franc.

Investors are expected to focus on the Federal Reserve meeting in the afternoon. However, if the Fed does not surprise, the market's attention may quickly move to the Japanese monetary authorities. The BoJ’s decision is expected to hit the wire between 4 and 5 am.

Investors will closely watch actions from Haruhiko Kuroda due to the fact that the January meeting become a catalyst for significant strengthening of the yen. It pushed the USD/JPY pair to around 1000 pips lower. Additionally, this happened despite the fact that the deposit rate was lowered into negative territory.

Before the incoming decision, the economists’ consensus that was published by Bloomberg, shows that both interest rates and the size of the asset purchase will not change. However, besides the median expectation, it is worth noting that some analysts assume loosening of monetary conditions.

Out of those surveyed, seven out of 41 respondents believe that the QE will be expanded from 80 trillion yen to 90 trillion per year, one expects an increase to 95 trillion, and 5 expect an increase to 100 trillion. The issue of interest rates is also not as clear as what is shown by the median estimates. Five economists foresee that the BoJ will bring interest rates to negative 0.2% and three analysts see it being pushed toward minus 0.3%.

As a result, we can expect that the current yen exchange rate, to some extent, has already priced in at least some hints of an easing monetary policy. We can also evaluate that the latest leaks regarding the BoJ credit line with negative interests for some types of loans, shows the determination of the monetary authorities in Tokyo.

Generally, it can also be assumed that the investor’s reaction will be substantial. If no decision is made and Kuroda does not signal future actions, then the yen could gain significantly in value, causing the USD/JPY to slide to even lower than 110. On the other hand, if the expectations of some analysts turn out to be true, the USD/JPY may soar to around 200 pips. Moreover, further easing from the BoJ may improve the global sentiment.

Brexit. The zloty

In yesterday's analysis we devoted some attention to the Brexit issue. The most recent polls, which, due to the accumulation of telephone surveys, slightly overestimate the odds regarding the UK to remain within the European Union.

Some confirmation of these views are the opinion polls that have been announced in the past 24 hours. The ICM online survey that shows a two percentage point lead for Brexit supporters. Further, the ORB telephone survey published shows an eight percent lead for the remain camp. However, in comparison to the same survey published last week, the lead decreased by four percentage points.

As a result, it may mean that the government campaign and Obama's visit had no effect on the behaviour of voters, and it is even possible that this influence will begin to be negative. Subsequent surveys are likely to be closely observed, since it is possible that even though it is still two months until the referendum, we are now at a turning point. If Brexit opponents don’t succeed in finding a stable lead against the leave camp, the trend will be difficult to reverse by June 23rd. This, in turn, should lead to the resumption of downward pressure on the GBP.

However, in the context of the zloty, Brexit issues are now completely ignored. In the next few hours, the most important factor for the Polish currency should be today’s message in the FOMC statement as well as the Bank of Japan’s decision. On one hand, if they are found to be more dovish than expected, it may slightly help the zloty to bring the franc and the euro around half of a percent below the current levels. On the other hand, the PLN should return to its own rhythm generated by fixed income foreign investors in the following days.