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Mid-Day Report: Dollar Maintains Post FOMC Weakness, Yen Catching Up on Tax Hike News Print E-mail
Market Overview | Written by | Sep 19 13 12:57 GMT

Mid-Day Report: Dollar Maintains Post FOMC Weakness, Yen Catching Up on Tax Hike News

Dollar remains generally soft today, except versus the Japanese yen, as post FOMC weakness continues. Data released from US saw initial jobless claims rose back to 309k in the week ended September 14, much lower than expectation of 330k. Continuing claims dropped 28k to 2.79m in the week ended September 7. Markets have little reaction to the data. Fed's refrain from tapering the asset purchase sent global equities broadly higher and DOW looks set to the record run as indicated by futures. Dollar index drops to as low as 80.07 so far today and would likely take on 80 psychological level soon. Gold and crude oil edge higher to 1375.4 and 108.99 today.

The Japan yen is the weakest currency today as pressured by massive risk appetite following FOMC announcement. Besides, it's reported that prime minister Abe and his cabinet have agreed to raise the VAT to 8%, up from 5% next year, and then 10% by April 2015. The news triggered speculations that BoJ will expand the stimulus program to offset the impact of the VAT hike on the economy. Also, BoJ board member Kiuchi warned that BoJ could be "influenced by external factors such as market expectations and will be forced to respond in such a way." Meanwhile, he noted that BoJ has "no choice" but to continue JGB purchase as banks are trying to "reconstruct their JGB portfolios". He expected "more and more" of BoJ buying JGBs rather than banks buying JGBs. Japanese trade deficit came in narrower than expected at JPY -0.79T in August.

SNB left benchmark rates unchanged at 0-0.25% as widely expected. Also, the EUR/CHF floor was maintained at 1.2. The central bank warned in the statement that "structural problems in Europe persist" which could "cause new tensions on the markets". Though, overall, "risk of less favorable global economic developments has decreased somewhat compared to the last quarter". SNB revised 2013 GDP growth projection to 1.5-2.0%, up from prior projection of 1.0-1.5%. CPI is estimated to be -0.2% in 2013, revised up from prior estimate of 0.3%. 2014 CPI is projected to be 0.3%, also revised up from prior projection of 0.2%.

Sterling weakened against Euro today after release of worse than expected retail sales, which contracted -0.9% mom in August, comparing to consensus of 0.4% mom growth. CBI trends total orders rose to 9 in September. Yesterday, the minutes for the September BOE meeting sent the pound higher as policymakers turned more optimistic over the economic recovery in the UK and expected no further stimulus was needed. More in BOE Raised GDP Forecasts, Further Easing Unnecessary As Recovery Gains Traction.

Other data released saw New Zealand GDP rose 0.2% qoq in Q2, inline with expectation.

Yesterday, to our and the market majority's surprise, the Fed refrained from tapering QE measures in September. Although the job market has shown signs of improvement, policymakers believed that the outlook has remained uncertain and they were concerned that premature tightening would lead to slowdown of the economic recovery. Bernanke hinted several months ago about tapering in September, it failed to materialize. Regarding the timing for tapering to really take place, the Chairman stated that "there is no fixed calendar schedule" and "if the data confirm our basic outlook" for economic recovery and the employment market, "then we could begin later this year". He also stressed that the first rate hike might not come until the unemployment rate is "considerably below" 6.5%. the unemployment rate slipped to 7.3% in August.

The new set of economic projections indicated policymakers remained cautious about the economic outlook. For 2013, the range of GDP growth was lower to +1.8% to +2.4% from June's projection of +2.0% to +2.6%. For 2014, GDP growth would reach a range of +2.2% and +3.3%, down from +3.3% and +3.6% in June. The outlook for the job market has improved. The unemployment rate would reach 6.9% to 7.3% this year, compared with June's prediction of 6.9% to 7.5%. For 2016, the Fed is predicting an unemployment rate of 5.2% to 6%. In 2016, the Fed will target a rate closer to 2% although this is not the consensus.

Suggested Readings:

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 97.34; (P) 98.33; (R1) 98.92; More...

USD/JPY's fall was contained at 97.76 and rebounded strongly after hitting lower channel support. Intraday bias is turned neutral first. The development argues that rebound from 95.80 is possibly no over yet. Above 99.37 will turn bias to the upside for 100.61 and above. Below 97.76 will turn bias back to the downside for 96.81 support. Overall, the pair is still bounded in consolidation from 103.73 and more range trading could be seen.

In the bigger picture, USD/JPY made a top at 103.73 and turned into consolidations. Some more sideway trading would be seen below 103.73. In case of another fall, downside will likely be contained by 92.56 support and bring rebound. Rise from 103.73 is expected to resume after the consolidation.

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised
22:45 NZD GDP Q/Q Q2 0.20% 0.20% 0.30% 0.40%
23:50 JPY Trade Balance (JPY) Aug -0.79T -0.81T -0.94T -0.91T
04:30 JPY All Industry Activity Index M/M Jul 0.50% 0.30% -0.60%
06:00 CHF Trade Balance (CHF) Aug 1.85B 2.74B 2.38B 2.49B
07:30 CHF SNB Rate Decision 0.00% 0.00% 0.00%
08:30 GBP Retail Sales M/M Aug -0.90% 0.40% 1.10%
10:00 GBP CBI Trends Total Orders Sep 9 2 0
12:30 CAD Wholesale Sales M/M Jul 1.50% 1.50% -2.80%
12:30 USD Initial Jobless Claims (SEP 13) 309K 330K 292K 294K
12:30 USD Current Account Balance Q2 -99B -$96.3B -$106.1B -105B
14:00 USD Philly Fed Survey Sep 10 9.3
14:00 USD Existing Home Sales Aug 5.25M 5.39M
14:00 USD Leading Indicators Aug 0.60% 0.60%
14:30 USD Natural Gas Storage 65B

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