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USDJPY Up 7 out of 8 Trading Days

  • Kathy Lien
  • 14 September 2019

 

 

Daily FX Market Roundup Sept 13, 2019

 

Next week is the Federal Reserve's monetary policy announcement and despite widespread expectations for the Fed's second rate cut this year USD/JPY is trading strongly ahead of the rate decision.The pair ended the week up for the 7th out of 8 trading days. The latest economic reports beat expectations with retail sales rising 0.4% in the month of August, which was double expectations. Consumer sentiment also improved with the University of Michigan Consumer Sentiment Index rising to 92 from 90.8.

 

According to Fed fund futures, the market completely discounted a quarter point rate cut and sees a 70% chance of a second move before the end of the year.Interestingly enough, these odds shifted lower over the past week because prior to that the market was pricing in 100% of two rate cuts before the end of the year. Part of this has to do with stronger inflation and consumer spending numbers but some economists feel that by easing aggressively, the European Central Bank reduces the pressure on the Fed to do the same, especially if they effectively avoid a deep prolonged recession. Whether that's true remains to be seen but in the immediate future, how the dollar trades for the days and weeks ahead will be determined by the tone of Fed Chairman Powell's press conference.

 

US dollar bears could be setting up for disappointment because everything we heard from Federal Reserve officials suggests that they are reluctant to ease.Earlier this month, rate cut expectations soared when Fed Chairman Powell said there are significant risks to the economic outlook and they would act appropriately to sustain expansion. However in that speech he also described the economic outlook as favorable, said the economy continues to perform well and the labor market is strong. A quarter point cut will be coming because the Fed is "conducting policy in a way to address risks," according to Powell but he could repeat the mantra that the economy is in a "good place." Over the past few weeks, we've highlighted the long list of US policymakers who casted doubt on the need for easing and if the Fed remains optimistic, the dollar will rise. This includes FOMC voter Rosengren who said "no immediate Fed action is needed if data stays on track." FOMC voter Williams also feels that the baseline for the economy is continuing strong growth and he won't pre-judge the outcome of the September meeting. Since July, consumer spending slowed but inflation is steady and service sector activity accelerated.  

 

Come Wednesday, if the FOMC statement or Powell's press conference oozes of optimism, the US dollar will rally even if the Fed lowers interest rates.If the decision to cut isn't unanimous and 2 or more members vote to keep rates steady, we could see USD/JPY make a run for 110. 

 

 

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About the Author
Kathy Lien
Kathy Lien is Managing Director and Founding Partner of BKForex. Having graduated New York University’s Stern School of Business at the age of 18, Ms. Kathy Lien has more than 13 years of experience in the financial markets with a specific focus on currencies

Ms. Kathy Lien is Managing Director of FX Strategy for BK Asset Management and Co-Founder of BKForex.com. Her career started at JPMorgan Chase where she worked on the interbank FX trading desk making markets in foreign exchange and later in the cross markets proprietary trading group where she traded FX spot, options, interest rate derivatives, bonds, equities, and futures.

In 2003, Kathy joined FXCM and started DailyFX.com, a leading online foreign exchange research portal. As Chief Strategist, she managed a team of analysts dedicated to providing research and commentary on the foreign exchange market.

In 2008, Kathy joined Global Futures & Forex Ltd as Director of Currency Research where she provided research and analysis to clients and managed a global foreign exchange analysis team. As an expert on G20 currencies, Kathy is often quoted in the Wall Street Journal, Reuters, Bloomberg, Marketwatch, Associated Press, AAP, UK Telegraph, Sydney Morning Herald and other leading news publications.

She also appears regularly on CNBC’s US, Asia and Europe and on Sky Business. Kathy is an internationally published author of the bestselling book Day Trading and Swing Trading the Currency Market as well as The Little Book of Currency Trading and Millionaire Traders: How Everyday People Beat Wall Street at its Own Game all published through Wiley. Kathy’s extensive experience in developing trading strategies using cross markets analysis and her edge in predicting economic surprises serve key components of BK’s analytic techniques.