- In spite of the fact that the Fed should stay on the sidelines at next week's FOMC meeting, the bias should remain on the upside in USD/JPY as investors seem reluctant to load on long JPY positions, preferring instead to continue seeking out higher returns
- USD/JPY: On the upside a resistance can be found at 104.32, while on the downside a support lies at 101.21
- We cannot rule out another rate cut from the RBNZ as inflationary pressures and more specifically inflation expectations remain desperately low
- The possibility of another easing move should keep pressure on the Kiwi or at least prevent it from appreciating strongly
- Any adverse outcome of US retail sales today will ironically send stocks higher as markets will likely scale down the Fed rate hike possibility before year-end
It was a quiet session in the FX market as investors impatiently await the upcoming BoJ and Fed meetings. The single currency was little changed against the dollar and traded range-bound between 1.1239 and 1.1251. The Japanese yen was the best performer amongst the G10 complex as it advanced 0.22% against the greenback, with USD/JPY easing at 102.21 after moving as low as 101.95 overnight. In spite of the fact that the Fed should stay on the sidelines at next week's FOMC meeting, which would prevent the USD from extending gains, the bias should remain on the upside in USD/JPY as investors seem reluctant to load on long JPY positions, preferring instead to continue seeking out higher returns. On the upside a resistance can be found at 104.32 (high from 104.32), while on the downside a support lies at 101.21 (low from September 7th).
Yann Quelenn, market analyst: US retail sales set to weaken: The market is awaiting August US consumption data today. Last month, the data printed in negative territory at -0.1% excluding auto & gas. Any adverse outcome will ironically send stocks higher as markets will likely adjust lower a Fed rate hike possibility before year-end. Indeed, investors are looking for yields and the stock markets represent a great opportunity as the cost of money is very weak.
We believe that the US economy is fragile and that there is no actual recovery. Economic data remains either soft or subdued. Industrial production is for example trading mixed. It has been more than two years since this indicator last released three months of consecutive increases. The dollar should therefore weaken over the next few weeks as a Fed rate hike will be repriced. A strong FX strategy is to buy/sell dollars when the probability of a hike is reaching a bottom/top. For December we would sell the dollar as a Fed rate hike looks too awaited.” ---
The New Zealand dollar was the worst performing currency amongst the G10 complex as it fell 0.21% against the US dollar, down to 0.7265 amid worse than expected GDP figures and faltering business confidence. Data showed that the Kiwi economy grew 0.9%q/q (seasonally adjusted) in the second quarter, missing estimates of 1.1%, while the first quarter’s figure was revised to 0.9% from 0.7%. All in all, the growth figures are rather encouraging and show that the economy continued to adjust effectively to the strong Kiwi and weak global demand environment. However, we cannot rule another rate cut from the RBNZ as inflationary pressures and more specifically inflation expectations remain desperately low. The possibility of another easing move from the RBNZ should keep pressure on the Kiwi or at least it should prevent it from strongly appreciating. From a technical point of view, NZD/USD has tumbled on the long-term 0.7335 resistance implied by the 38.2% Fibonacci level (on 2009-2014 rally). In the short-term, the pair has successfully broken the bottom line of its uptrend channel, suggesting that the bullish momentum is coming to an end.
In the equity market, Asian returns were mixed on Thursday. Japanese equities moved further into negative territory with the Nikkei and the Topix index down 1.26% and 1.04% respectively. Chinese markets were closed for the Autumn Festival. In Hong Kong, the Hang Seng was up 0.65%. In Europe, equity futures were broadly trading in negative territory, pointing to a lower open.
Today traders will be watching unemployment rate from Sweden; interest rate decision from Switzerland; retail sales from the US and the UK; Empire manufacturing, initial jobless; PPI, Philadelphia business outlook and industrial production from the US.