The Friday Forex Takeaway – Episode 38

<h2>Key Points from This Week</h2>
<p><strong>Fed Delivers Warning Message</strong></p>
<p>At the June FOMC this week, the Fed held its monetary policy at current levels. However, the statement and comments following the meeting were decidedly dovish with Fed chairman Powell warning the markets that the economic recovery from the covid-19 crisis would not be quick or easy. Powell’s comments come on the back of a bumper April jobs number which saw a record 2.5 million jobs created. However, Powell warned that despite the encouraging figures, the jobs market remains heavily subdued following the loss of 20 million jobs in April and warned that the economy would take a long time to fully recover meaning that rates were unlikely to be lifted until at least 2022.</p>
<p><strong>Oil Inventories Hit Record High</strong></p>
<p>As a reflection of the ongoing demand shock caused by the covid-19 crisis, the EIA reported US oil inventories moving to their highest level on record last week. Crude stores ran up to 538.5 million barrels as demand continues to languish amidst the burgeoning post-lockdown environment. US crude production has been falling over recent months but still not at the pace needed to address the oversupply in the market. With many storage centres full or nearly full the situation is becoming increasingly concerning and prices remain vulnerable to further downside shocks leading up to the futures expiration near the end of the month.</p>
<h2>Key Events Next Week</h2>
<p><strong>BOJ Meeting</strong></p>
<p>In light of the recent stabilisation in conditions the BOJ is unlikely to announce any fresh actions next week. Given the very complex state of its current monetary policy, with rates deep in negative territory already and $700 billion worth of QE announced since March,  the BOJ will likely look to keep its powder dry as it watches the reopening underway in Japan with caution. However, we could see some technical adjustments to its current programs, specifically with regard to its corporate loan support programs.</p>
<p><strong>SNB Meeting</strong></p>
<p>The SNB is not widely expected to adjust its monetary policy next week. With rates sitting down at record levels of -0.75% its options appear limited and, as with other central banks, the risk of needing to act further in the near future in the event of a second wave of the virus remain elevated. However, a return to CHF strength over the last week is certainly worth monitoring and if it continues this could prompt action from the bank.</p>
<p><strong>BOE Meeting</strong></p>
<p>With rates at record lows of 0.10%, the risk of moving into negative territory is increasing and the BOE has confirmed that discussions are underway. However, it appears more likely that the BOE will prefer to sit on that option for the time being and instead look to adjust its bond buying at the June meeting. Current expectations are for a further £100 billion of QE to be announced next week, adding to the record £200 billion already in use.</p>
<h2>Keep an Eye On</h2>
<p><strong>US ‘Second Wave’ Headlines</strong></p>
<p>As reopening continues across the US, the risk of a second wave of the virus is increasing with some states already noting consistent increases in hospitalisation rates since lockdown measures eased. If this trend continues and spreads further, there is a very real risk that a further lockdown might need to be introduced to contain the virus which would be heavily bearish for risk assets.</p>
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