Raft of Fedspeak to dictate sentiment

It has been an interesting start to the week for FX markets with risk currencies initially getting off to a positive opening but drifting as the session progressed.

USD/JPY is the pair to watch at the moment as it remains elevated and looks to consolidate its break above 100. There are a couple of key releases from Japan this week, including trade balance and the BoJ meeting. While the BoJ can never be ruled out to throw a few curlers in the mix, many analysts expect no changes to the pace of asset purchases, nor the tone of guidance. A key to look out for on the trade balance side of things is whether we’ll see a pickup in real exports which is one of the key metrics given recent yen weakness. We might also get developments from Japan’s plan to come up with a package to counter the planned sales tax hike.

On the USD side of the equation, Fedspeak will be the dominant theme with Bernanke, Powell, Tarullo, Dudley, Evans, Bullard Rosengren, George, Plosser, Kocherlakota and Lacker all set to speak. This will help shape up tapering expectations and give us a clearer indication of whether Fed members are in sync with Yellen. Perhaps all this Fedspeak will help the USD stem its slide in the near term. USD/JPY is currently facing near-term resistance in the 100.61 region. Should we see some near term profit taking, I will still be looking to buy the dips.

AUD hopes pinned on China this week

In the risk space, AUD/USD is an interesting one to watch with China in focus and the RBA November meeting minutes. On the China front, the AUD first has to digest comments from China’s Third Plenum and what these mean for the credit markets. China is looking at tightening controls over local finances to limit the risk of a debt crisis. It is also looking at plenty of policy changes to encourage foreign investment and a change of the one child policy. Fiscal and tax reforms will also be among the major talking points. The question will be exactly how these measures affect the credit markets in China and the impact they will have on the mix of inflation and growth going forward. On the calendar this week we also have the HSBC flash manufacturing PMI reading, which is expected at 50.9. China property prices data released today was also fairly positive, but not enough to push risk higher with a somewhat cautious tone prevailing.

Locally, the RBA’s minutes will be the main release for the AUD to look out for without too many major surprises expected. However, should risk sentiment remain positive in the near term, then we could possibly see the AUD make a move back into the A$0.94 region. To the downside, the pair will be looking for some protection in the 0.93 region.

USD/JPY

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