FX markets focus on Fed comments

The greenback maintained its gains against the yen but still struggled against most risk currencies, like the euro.

USD/JPY traded as high as 103.33 and came just shy of last week’s high of 103.38. May highs were at 103.74 and that’s the next level to look out for. Economic data was limited on the US front but there were some very interesting comments from Fed member James Bullard. Bullard essentially said the odds for a December taper have risen due to the sharp improvement in jobs. However, he did say any reduction in asset purchases should be modest to account for low inflation. As a result, it certainly seems like the debate has switched to how big the taper will be. His comment was ‘should inflation not return toward target, the Fed could pause tapering at subsequent meetings’.

Out of Japan today we have manufacturing data, tertiary industry activity, consumer confidence and machine tool orders to look out for. USD/JPY is edging higher and hanging at around 103.30 heading into the data. However I still feel most of the volatility for the pair is likely to come from the US dollar side of the equation in the near term. Data is relatively light on the US front today but judging by the current price action the momentum seems to be firmly in favour of the bulls.

AUD choppy ahead of China data

Risk currencies will also be in focus ahead of China’s industrial production, fixed asset investment and retail sales data. Industrial production is expected to be relatively steady at +10.2%. However, given the sharp rise in exports from the trade data the other day, there is always potential for an upside surprise. China data is only out at 16.30 AEDT. Locally we have NAB business confidence and home loans data due out at 11.30 AEDT.

AUD/USD currently oscillating around A$0.91 and could continue a steady recovery in the near term. Poor ANZ job ads yesterday could be a sign of things winding down into the end of the year and warrant some caution on the business confidence side of things. Home loans expected up 1.3% and judging by the recent activity in the property market, we could see a surprise higher in this figure. Should local and China data impress, we could see a pop in the AUD in the short term. Selling AUD/USD into strength remains the preferred strategy.

USD/JPY

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