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Daily Report: Dollar Mildly Softer after FOMC Offered Nothing New, Yen Even Weaker Print E-mail
Action Insight Archives | Written by | Oct 25 12 03:19 GMT

Daily Report: Dollar Mildly Softer after FOMC Offered Nothing New, Yen Even Weaker

Dollar turned a bit softer overnight after FOMC left rates unchanged at 0-0.25% as widely expected and offered no surprise to the markets. Fed maintained it's pledge to keep rates at this ultra low level until mid-2015 and held the USD 40b per month open-ended QE3 program unchanged too. In the accompanying statement, Fed showed concern that "without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions." And Fed could even expand its efforts “if the outlook for the labor market does not improve substantially.” While the greenback dipped mildly against most major currencies, it strengthens against the even weaker yen as Asian equities opened mildly higher, diverging from weakness in US stocks.

Suggested Reading on FOMC:

New Zealand dollar rebounded after RBNZ left rates unchanged at 2.50% as expected and the accompanying statement somewhat quashed hope for a rate cut. The new RBNZ Governor Graeme Wheeler said in the statement that "market sentiment has improved from earlier in the year, suggesting the risks to the global outlook are more balanced." Domestically, "GDP continues to expand at a modest pace". But "fiscal consolidation is constraining demand growth" and high NZD is "undermining export earnings". Regarding inflation, RBNZ expects CPI to "head back towards the middle of the target range". And RBNZ pledged to "continue to monitor inflation indicators" closely over the coming months. That's said, RBNZ left no hints on rate cuts.

Meanwhile, Canadian dollar was back under selling pressure after BoC Governor's comments as Carney noted that "the case for adjustment of interest rates has become less imminent." That's in contrast to the central bank's statement on Tuesday which still noted that "over time, some modest withdrawal of monetary policy stimulus will likely be required". The monetary policy report released yesterday noted that “following the recent period of below-potential growth, the economy is expected to pick up and return to full capacity by the end of 2013." 2012 growth is projected to be 2.2%, followed by 2.3% in 2013 and 2.4% in 2014.

On the data front, Japan corporate service price index dropped -0.5% yoy in September. China conference board leading indicator rose 0.3% in September. Main focus in European session will be on UK Q3 GDP, which is expected to to show 0.6% qoq growth, following -0.4% contraction in Q2. Other data to be watched today include Eurozone M3 money supply, US durable goods orders, jobless claims and pending home sales.

USD/JPY Daily Outlook

Daily Pivots: (S1) 79.69; (P) 79.80; (R1) 79.92; More...

USD/JPY recovers today but is kept in range below 80.00 temporary top. Intraday bias remains neutral. More consolidations would still be seen with risk of another fall. But downside of retreat should be contained above 78.86 support and bring another rally. Above 80 will target 80.61 resistance (50% retracement of 84.17 to 77.13 at 80.65) next.

In the bigger picture, firstly, there is no sign of trend reversal in USD/JPY yet and the larger down trend from 124.13 is still expected to continue. Nonetheless, consolidation pattern from 75.56 should extend for a while below 85.51 first. In any case, we'd stay bearish as long as 85.51 resistance holds and expect an eventual downside breakout.

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised
20:00 NZD RBNZ Rate Decision 2.50% 2.50% 2.50%
23:50 JPY Corporate Service Price Y/Y Sep -0.50% -0.50% -0.30%
2:00 CNY Conference Board Leading Index Sep 0.30% 1.70%
8:00 EUR Eurozone M3 Y/Y Sep 3.00% 2.90%
8:30 GBP GDP Q/Q Q3 A 0.60% -0.40%
8:30 GBP Index of Services 3M/3M Aug -0.30% 0.10%
12:30 USD Durable Goods Orders Sep 6.80% -13.20%
12:30 USD Durables Ex Transportation Sep 0.80% -1.60%
12:30 USD Initial Jobless Claims (OCT 19) 373K 388K
14:00 USD Pending Home Sales M/M Sep 2.00% -2.60%
14:30 USD Natural Gas Storage 51B

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