Earnings in Focus as FX Markets Look to Risk Trends for Guidance

Talking Points:

• Yen gains, Asian stocks retreat in apparent pre-positioning for BOJ, FOMC
• New Zealand Dollar trades higher amid easing RBNZ rate cut speculation
• S&P 500 futures hint at risk-on mood ahead of busy day of earnings reports

The anti-risk Japanese Yen outperformed overnight as stocks declined in Asian trade. Regional shares followed Wall Street downward in a move that may reflect pre-positioning ahead of this week’s much-anticipated monetary policy announcements from the Federal Reserve and the Bank of Japan.

The typically sentiment-oriented New Zealand Dollar diverged from the broader risk-off theme, rising alongside front-end bond yields. Gains may reflect speculation that the RBNZ will not opt for a dovish posture at this week’s rate decision. Indeed, the priced-probability of a cut fell to 30 from 36 percent at the start of the week.

Looking ahead, a quiet day on the European economic data front puts the spotlight on US news-flow. March Durable Goods Orders figures as well as April’s Consumer Confidence and Markit PMI reports are on tap. Significant follow-through seems unlikely whatever the outcomes however as traders withhold directional conviction until this week’s FOMC statement is unveiled.

On balance, this seems likely to keep risk trends at the forefront. Continued pre-positioning and a busy day on the corporate earnings docket stand out as catalysts. First-quarter results from du Pont, Procter & Gamble and Lockheed Martin headline a busy day with 50 companies in the S&P 500 due to report. Futures tracking the benchmark equity index are pointing higher, hinting at a risk-on dispositionahead of the opening bell.

What is in store for the S&P 500 in the second quarter? See our forecast here!

Asia Session

European Session

Critical Levels

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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