FOMC Minutes Eyed, Japan May Delay Tapering
Swissquote Bank Ltd | Jul 08, 2015 06:39AM ET
Forex News and Events
Later today, the Fed will release the minutes of its June 16-17 FOMC meeting. At the June 17 press conference, a dovish Yellen stated that the Committee needs to see further improvements in the labour market and to feel reasonably confident that inflation will reach the 2% target over the medium term before starting to increase the federal funds rate. In the meantime, a fresh batch of US data has been made available, and the least we can say is that the conditions are far from being met. Last week, June Non-Farm Payrolls disappointed to the downside with a reading of 223k, while the “strong” 280k from previous month were revised down to 254k. Even more worryingly, inflation pressures remain subdued, and we expect this situation to last as wage growth remained weak (flat in June and 0.2%m/m in May).
We expect the minutes to indicate that the Fed is moving toward rate tightening, and to emphasise relentlessly the Fed’s optimism about the upcoming US economic recovery. However, markets already priced in the minutes’ dovish tone, and we therefore do not anticipate further USD depreciation against the backdrop of mounting uncertainties in the Greek crisis. Recent US data strengthens our idea that the Fed may not be able to begin the tightening cycle in 2015, but will rather have to wait until 2016 for inflation and growth to improve significantly.
Japan will not reduce its monetary policy before 2017
Yesterday, Etsuro Honda, who is Prime Minister Shinzo Abe's advisor, said that that it would be difficult to Japan to reduce its monetary policy before the sales tax hike that will occur in April 2017. Last year already, the increase from 5% to 8% has slashed growth for two quarters. In addition, the Qualitative and Quantitative Easing, in other words, the Money Waterfall, has brought the Japanese debt-to-GDP ratio to more than 230%.
For the time being, Japan is still struggling to go out of the deflation, which is necessary for growth. After twenty years of deflation, BoJ expectations’ to see inflation back at 2% within mid 2016 seem too optimistic. Indeed, a major issue is consumer spending, which has to be the major key driver of the Japanese Growth. May retail sales came in better than expected at 3.0% vs 2.2% y/y. Traders will regard June retail sales with attention at the end of this month.
USD/JPY is gaining downside momentum amid expectations of Japanese growth. Furthermore, US September rate hike expectations are moving away. Therefore, we target support at 120.86.
AUD/USD - Moving Sharply Lower
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The Risk Today
EUR/USD EUR/USD has broken support at 1.0955 (29/06/2015 low). Hourly resistance is at 1.1278 (29/06/2015 high). Stronger resistance lies at 1.1436 (18/06/2015 high). Hourly support is given at 1.0868 (28/05/2015 low). We expect the pair to remain below 1.1100. In the longer term, the symmetrical triangle from 2010-2014 favors further weakness towards parity. As a result, we view the recent sideways moves as a pause in an underlying declining trend. Key supports can be found at 1.0504 (21/03/2003 low) and 1.0000 (psychological support). Break to the upside would suggest a test of resistance at 1.1534 (03/02/2015 reaction high).
GBP/USD GBP/USD has broken support at 1.5488 (15/06/2015 low). Hourly resistance can be found at 1.5930 (18/06/2015 high). We expect the pair to decrease again within the next few days. In the longer term, the technical structure looks like a recovery bottom whose maximum upside potential is given by the strong resistance at 1.6189 (Fibo 61% entrancement).
USD/JPY USD/JPY is still heading lower. Hourly support is given at 121.45 (25/05/2015 low). Hourly resistance can be found at 124.45 (17/06/2015 high) and stronger resistance still lies at 135.15 (14-year high). The technical structure still suggests a downside momentum as the pair is setting lower highs. A long-term bullish bias is favored as long as the strong support at 115.57 (16/12/2014 low) holds. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) is favored. A key support can be found at 118.18 (16/02/2015 low).
USD/CHF USD/CHF has failed to challenge hourly resistance at 0.9543 (27/05/2015 high). Stronger resistance can be found at 0.9721 (23/04/2015 high). Hourly support can be found at 0.9151 (18/06/2015 low). We expect the pair to try again to challenge hourly resistance at 0.9543. In the long-term, there is no sign to suggest the end of the current downtrend after failure to break above 0.9448 and reinstate bullish trend. As a result, the current weakness is seen as a counter-trend move. Key support can be found at 0.8986 (30/01/2015 low).
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