Market Eyes Fed, S&P Downgrades Japan
Swissquote Bank Ltd | Sep 17, 2015 05:00AM ET
Market Brief
US inflation reports put the final nail in the coffin for interest rate hike in September. The uncertainty surrounding the timing of the first rate hike by the Federal Reserves in almost 10 years has held the market’s attention for the last few months. However, one should remember that the Fed’s dual mandate is to promote maximum sustainable employment and price stability. One can reasonably say that the first mandate is fulfilled or at least that the job market is on the right track as unemployment rate fell to 5.1% in August. However, according to last month CPI reports, inflation pressures remain subdued in the US. Yesterday, August headline CPI printed at 0.2%y/y or -0.1%m/m, matching median forecast. Core inflation remained stable at 0.1%m/m or 1.8%y/y, below market expectations of 1.9%y/y. On the news, EUR/USD completely erased yesterday’s early session losses and bounced back above the 1.13 threshold and reached 1.1321, up 0.95%, in the late European session. In the medium-term, the pair remains in its uptrend channel and still has room before testing the bottom, lying around 1.12.
In other big news, Standard & Poor’s has downgraded Japan’s sovereign credit ratings to A+ from AA- with stable outlook. The rating agency argued that “Despite showing initial promise, we believe that the government's economic revival strategy - dubbed "Abenomics" - will not be able to reverse this deterioration in the next two to three years”. On the data front, August seasonally adjust trade balance came in on the soft side, printing at -¥358.8bn versus -¥377.3bn median forecast and above last month revised deficit of -¥375.1bn. In spite of substantial improvements of the trade balance since 2014, the trend appears to be reversing as export failed to keep the pace despite a weak yen. Exports rose 3.1%y/y in August versus 4.3% median forecast, well below 7.6% increase in July. Meantime, imports contracted -3.1%y/y versus -2.5% expected, almost stable compared to -3.2% in July. USD/JPY is heading toward the next resistance standing at 121.33 (high from September 10th) while on the downside a support can be found at 119.40 (low from September 15th). We remain bearish yen on the medium/long-term perspective as we believe that the latest developments have increased the odds that the BoJ will increase the size of its stimulus.
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On the equity, Asian regional markets are mixed this morning with Chinese shares blinking red on the screen. In Hong Kong the Hang Seng lost -0.56% while in mainland China, stock indexes paired losses with the Shanghai Composite down -0.79% and the Shenzhen Composite down 0.07%. In Japan, the Nikkei 225 gained 1.43% as traders anticipated an increase of the size of Boj’s quantitative easing programme. In Australia, the S&P/ASX 200 gained 0.94% while the Aussie is lacking the fresh required to break the 0.72 resistance (psychological threshold and high from August 28th) to the upside.
Today traders will be watching: Retail sales from UK; housing start, building permits, initial jobless claims, Bloomberg consumer comfort index, Philadelphia Fed business outlook and FOMC rate decision.
Currency Tech
EUR/USD
R 2: 1.1714
R 1: 1.1438
CURRENT: 1.1303
S 1: 1.1017
S 2: 1.0809
GBP/USD
R 2: 1.5819
R 1: 1.5628
CURRENT: 1.5500
S 1: 1.5165
S 2: 1.5089
USD/JPY
R 2: 125.86
R 1: 121.75
CURRENT: 120.90
S 1: 118.61
S 2: 116.18
USD/CHF
R 2: 1.0240
R 1: 0.9903
CURRENT: 0.9708
S 1: 0.9513
S 2: 0.9259
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