The dollar has been holding narrow ranges into the Fed. EUR-USD has made time in the low-to-mid-1.09s, consolidating yesterday's drop that left a one-week at 1.0904. USD-JPY logged a five-day peak of 122.10 on the back of yen underperformance amid a backdrop of strong gains in Japanese and global stocks, as per the usual correlative pattern. The market is holding a relatively neutral net dollar exposure, according to BNP Paraiba's forex positioning analysis from late last week. The Fed is widely expected to hit the rate lift-off button today, but it will all be about how it guides future policy expectations. While the statement is likely to reiterate the improvement in the labour market and transitory nature of low inflation, it's also expected to indicate risks are balanced, and there is not likely to be any hint about the timing of the next move as data dependency will remain the mantra. This is why dollar's haven't been bought aggressively into what is set to be the first hike since 2006
[EUR, USD]
EUR-USD, after logging a one-week low of 1.0904 yesterday, has recouped to the 1.0950 area. The market is holding a relatively neutral net exposure into the Fed's announcement, according to BNP Paraiba's forex positioning analysis from late last week. The Fed announces today after the European close, at 19 GMT. It will all be about how it guides future policy expectations as a 25 bp baked in the cake. While the statement is likely to reiterate the improvement in the labour market and transitory nature of low inflation, it's also expected to indicate risks are balanced, and there is not likely to be any hint about the timing of the next move as data dependency will remain the mantra. The market is savvy to this, which is why dollar's haven't been bought aggressively into what is set to be the first hike since 2006.
[USD, JPY]
The yen has been underperforming today amid a backdrop of strong gains in Japanese and global stocks, as per the usual correlative pattern. USD-JPY logged a five-day peak of 122.00, breaching above the 50-, 100- and 200-day moving averages, which are currently converging at 121.57-70. The later zone now returns as a support zone. It's all about the Fed's announcement today. We expect a 25 bp hike to be accompanied with a signal of non-commitment with regard to further tightening, which in the event would likely be dollar negative. Recent data out of Japan have been encouraging. Japan's Tankan large manufacturing index this week came in with a +12 reading in Q4 data, matching Q3 and better than expected (we saw a +10), and the large non-manufacturing index was 25 in Q4, unchanged from Q3. Last week saw Japanese core machinery orders numbers jump 10.7% m/m in October, well up on the market consensus for a 1.5% decline. This followed a big upward revision in Japan's Q3 GDP this week, to +1.0% y/y from the -0.8% originally reported, which shows that the country didn't fall into a technical recession after all. The data has softened expectations for the BoJ to expand its QQE policy in January, which is the prevailing market expectation.
[GBP, USD]
Sterling has recouped initial post-UK jobs data losses, with the market initially reacting to the dip in pay growth, which is a key metric that the BoE is monitoring, while overlooking the unexpected drop in the unemployment rate to a new cycle low of 5.2%. Cable printed a low of 1.4987 in the immediate wake of the data release, since settling back to the 1.5110-15 area, unchanged from pre-data levels. The pound is trading firmer against the euro over the same period, though this reflects a broader decline in the euro. Markets are in a non-committal state ahead of the Fed's decision.
[USD, CHF]
EUR-CHF ebbed into four-week low territory beneath 1.0780 after breaking the low seen in the wake of the SNB unchanged policy announcement last week, which left the Libor target range at -1.25% to -0.25%, and the sight deposit rate at -0.75%. The SNB's press release still noted that despite depreciating "somewhat" in recent months the Swiss franc remained "significantly overvalued." The central bank added that it will "remain active in the foreign exchange market ... as necessary." The cross looks set to remain comfortably above the sub-1.0500 levels that prevailed earlier in the year before the SNB cut the deposit rate to -0.75%.
[USD, CAD]
USD-CAD continues to consolidate after running to a 11-year high on Monday, at 1.3781. A renewed leg lower in oil prices had underpinned the pair earlier in the week, though prices have since steadied, eroding upside impetus out of USD-CAD. Support is marked at 1.3639 (last Thursday's peak), ahead of 1.3620.
