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USDJPY is now trading around 113.40, almost down by 0.28% and moreover slumped by around 1% since yesterday’s high of 114.59 after Trump Jr posted a series of e-mails revealing Russian connection controversy in the US election. Also, at the same time, some dovish comments from Fed’s Brainard that he will personally prefer to assess US inflation further for next hikes may hurt the USDJPY (although he is preferring B/S tapering at the earliest; i.e. Sep’17).
As of now, from comments of various US policymakers & Fed speakers, it seems that Fed is going to start its B/S tapering from Sep’17 and depending upon the effects of its QT on market/FX & economy and incoming US economic data, Fed will decide for the next course of action (Dec’17 hike or not); Fed has clear plan for a start of QE unwinding from Sep’17 and Dec’17 hike plan may be tentative with some caveats.
All eyes will be on Yellen’s testimony today for a definitive plan for Fed’s QT path, but considering the ongoing US political controversy, Yellen may not reveal anything new which market does not know and she may choose to keep the ongoing Fed suspense about QE unwinding & further rate hikes amid recent spate of overall mixed/soft US economic data & tepid inflation. Thus it may be a neutral Fed event today and may also disappoint the USD bulls.
But, considering Yellen’s recent optimism about strength of US economy and transitory nature of inflation, there may be no reasons for her to stay in the sideline today as the last US NFP report may be also termed as blockbuster in Fed’s language, although US wage inflation is nowhere. Accordingly, USD will get strength if Yellen indicated for a definitive path of QT and it may crash, if Fed chair is non-committal today and looked little confused.
Technically, USDJPY now need to stay over 113.15 area; otherwise 112.45-111.35 & 110.65-108.15 may come soon; for any recovery, it need to sustain over 114.45-114.80 area for further rally towards 115.65-116.15 zone in the coming days. Apart from Fed’s Beige book, market may also focus on US CPI on Friday, which may be a major tailwind for Fed’s normalization plan so far.
EURUSD is now trading around 1.14515, down by almost 0.19% and off the session/recent high of 1.1492 after tepid German WPI today, which flashed as 0.00% against estimate of 0.2% (prior: -0.7%) and may be indicating a soft PPI/CPI for the EZ in the coming days. But better than expected EZ IIP data at 1.3% against estimate of 1.1% (prior: 0.3%-R) may be also supporting the pair to some extent today.
Again, some dovish comments from ECB’s Visco (Italian Central Bank Gov), stressing that EZ monetary conditions need to remain as “expansive” may be also hurting the EUR sentiment today as it’s viewing against QT/rate hikes by ECB apart from option barriers scheduled to expire today.
EURUSD got a boost yesterday after Trump’s Russian e-mail publication tragedy as an appeal of a safe haven currency along with prospects of strong EZ economic recovery and ongoing QT chorus by various ECB policy makers.
But, looking ahead, EURUSD has to sustain above 1.14975-1.15015 level for the milestone of 1.16099 & 1.16250-1.18195 zone; otherwise it may fall and sustaining below 1.13910 may further fall towards 1.1299-1.12115 & 1.11780-1.11210 area in the coming days; despite hawkish tunes by various ECB members, Draghi may not allow EURUSD to stay above 1.15 for long; if Yellen looked nervous (dovish) today, then expect Draghi also to take similar lines.
GBPUSD is now trading around 1.2855, almost flat (-0.01%), but off the session low of 1.2812 and just made the session high of around 1.2865 on the back of better than expected UK Job data; unemployment rate for May came as 4.5% against estimate of 4.6% (Prior: 4.6%) and claimant count change for June flashed as 6k against estimate of 10k (Prior: 7.5k-R).
UK wage growth for May also came as inline for May at 1.8% against estimate of 1.8% (Prior: 2.1%) with bonus; but still real wage growth in UK may be termed as negative as inflation is running quite high around 3% and thus discretionary consumption by the UK consumers may be still remain subdued.
Yesterday GBPUSD got some boost on hopes of some hawkish scripts from the Dy BOE Gov Broadbent, who is a known dove; but nothing was offered from him regarding UK monetary policy; subsequently GBPUSD plunged in US session yesterday. Again, this morning, Broadbent commented to the Scottish press that he is not ready for a UK rate hike yet considering overall business uncertainty due to Brexit despite higher inflation of the UK economy. This dovish yet cautious comment has made the GBP weaker again in the morning today.
Looking ahead, despite an upbeat job report today, wage inflation is still subdued and together with that ongoing UK political & Brexit uncertainty may make BOE’s job tougher to maintain the dual mandate of optimum employment & reasonable inflation for the UK economy; the reason for higher inflation in UK may be the devalued currency (GBP); i.e. it’s an imported inflation.
Again, the core reason of GBP devaluation may be purely politics (Brexit) and not economics and thus even if BOE hikes in the months ahead to keep parity with USD, we may see fall in GBP again; i.e. it’s still a sell on rise pair until UK political & Brexit jitters is resolved; otherwise UK may be even downgraded by the global rating agency,
Technically, GBPUSD now need to stay above 1.2800; otherwise it may fall more towards 1.27695/650-1.26350/090 area gain; for any further rebound from here, GBPUSD need to sustain above 1.28900 for 1.29485/810-1.3030 zone in the days ahead.
Today all eyes will be on the BOC as rate hike by 0.25% is now almost certain (>90%); but the tone of the Gov (Poloz) and the BOC statement may matter most; if it’s a dovish hike, expect some rally in USDCAD; but if it’s a hawkish hike, then expect USDCAD to plunge around 1.26 in the coming days.
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