Will FOMC Minutes Lift USDJPY Through 111.00?

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Market Drivers August 16, 2017
EUR tumbles as reports ECB will not change policy
UK Labor data beats
Nikkei -0.12% Dax 0.83%
Oil $47/bbl
Gold $1276/oz.

Europe and Asia:
AUD Wage Price index 1.9%
GBP UK Average Earning 2.1% vs. 2.0%
GBP UK Claimant Count -4.2K vs. 3.7K

North America:
USD House Starts/Permits 8:30
USD FOMC Minutes 14:00

After comatose Asia session trade, currencies came to life in early European dealing with EURUSD plunging below the 1.1700 figure while cable peaked above 1.2900.

The euro was hit hard by report from Reuters that Mario Draghi will not make any policy shift announcement at next week’s gathering in Jackson Hole. Markets has been anticipating that Mr. Draghi would provide a timeline for the start of tapering of QE. EURUSD had rallied in some part on the assumption that ECB will join the Fed in tightening monetary policy as the year comes to a close.

The fact that Mr. Draghi has chosen to hold off on any announcement at this stage suggests that the ECB may be concerned about further strengthening of the euro and does not want the currency to rally towards the key 1.2000 figure just yet. After briefly tumbling below the 1.1700 mark the pair rebounded to 1.1730 as EZ GDP data came in slightly above forecast at 2.2% versus 2.1%. Still the upside in the pair is likely to be capped for rest of the day unless the FOMC minutes due later today provide a dovish tone.

In the UK the labor data came in better than expected with average wages rising by 2.1% versus 2.0% eyed and unemployment rate sinking to 4.4%. Real wages, however, fell another -0.5% according to ONS and that is very likely to negatively impact UK Retail Sales due tomorrow. Still, after several days of selling off cable appears to have stabilized at the 1.2850 level and today’s data could help spur a small short covering rally towards 1.3000. If, however, the move reverses and cable drops below the 1.2850 level the pair could be headed towards 1.2700 as concern over the lack of progress on Brexit negotiations trumps any temporary improvement in data.

In North America today the focus will be on the Fed FOMC minutes which are likely to provide some guide towards balance sheet adjustment and reaffirm the member’s intention to hike rates once more by December of this year. Yesterday’s much better than expected US Retail Sales provided the economic support for further tightening and if the Fed minutes confirm the policy bias USDJPY should be able to take out the 111.00 figure in North American trade. If however, the minutes reveal a greater sense of policy uncertainty, the pair could quickly sell off. Still with US economic news showing improvement any dip will most probably be quickly bought as 110.00 appears to be solid support for USDJPY right now.

Boris Schlossberg
Managing Director

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