European Summary and Highlights 18 Mar

European morning session

The EUR made small gains against most currencies in a quiet European morning session. EUR/USD gained around 10 pips to trade above 1.09, while EUR/JPY gained 20 pips to 162.60. The NOK was the only G10 currency that held its own against the EUR, with EUR/NOK dropping slightly to 11.5350. Otherwise, the EUR was up small everywhere, with the USD broadly stable, losing ground to the EUR and NOK, and gaining slightly against the SEK and CAD.

There was no data of any note during the morning, with Eurozone final CPI in line with the preliminary release at 2.6% y/y.

Asia session

The BoJ meeting will be conducted from Monday to Tuesday and market participants should be ready for any "leaks" coming out as they will be market moving. Some big names are forecasting a hike in the March meeting but we feel like the BoJ is in no rush to hike with headline CPI moderating faster and the second to third round of wage negotiations still ongoing for small and medium firms. There are a variety of possible outcomes with changing the forward guidance a staple and officially removing YCC unlikely to be market moving given the current level of yields. A hawkish surprise would be BoJ directly hike to 0.1% and keep the doors open for more tightening and a dovish one would be no hike.  On Monday Asia session, Bank of Japan announced they would conduct an unscheduled bond buying operation. This is an interesting one as most expect a scrapping of YCC on Tuesday and we did not see a spike in yield as previous intervention. This seems to be a preemptive move, which signals the BoJ is expecting the yields to rise on Tuesday and suggest very likely the YCC will be scrapped as expected.  USD/JPY is patiently waiting for "leaks" and is trading 0.08% higher at 149.11 with JGB yields falling more than U.S. T-yields.

When compared to the BoJ, RBA can almost be assured there will be no fireworks. The current inflation dynamics does not support for a hike or cut as CPI remains above target range yet moderating along with forecast. RBA will likely give us another copy and paste statement because they prefer the flexibility to act if CPI spikes. The AUD/USD is supported by better than expected Chinese data on Monday and us trading 0.05% higher at 0.6563, NZD/USD is 0.12% higher at 0.6091 while USD/CAD rose 0.02% to 1.3540. Elsewhere, EUR/USD is down 0.02% and GBP/USD is down 0.06%.