Forex Major Currencies Outlook (Sept 18, 2014)

As expected, the US central bank pushed through with its $10 billion monthly reduction in asset purchases and is likely to end easing in October with a $15 billion taper. However, interest rates might still stay low for a “considerable time” after easing ends, as Yellen mentioned that the labor market has yet to fully recover and that inflation is still below target. Growth downgrades for 2015 were also seen yet dollar traders were more focused on the fact that the Fed is preparing to tighten policy. US building permits and initial jobless claims are due today while Yellen is set to give another testimony.

EUR

The euro resumed its selloff to the dollar but advanced to the yen, as traders saw a stronger than expected headline CPI from the euro zone. The figure was upgraded from 0.3% to 0.4%, easing some deflationary concerns. The ECB’s targeted LTRO is set to start today and might draw enough demand, which might then keep the euro afloat.

GBP

The pound drew support from upbeat UK jobs figures, with the claimant count change showing a 37.2K drop in joblessness and the unemployment rate improving from 6.4% to 6.2%. Wage growth was also seen, as average hourly earnings marked a 0.6% gain while the previous month’s report was upgraded to show a smaller 0.1% dip. Meanwhile, the BOE minutes revealed that a couple of policymakers still voted to hike rates. The Scottish referendum could be the main event risk for the pound today, even as the UK gears up to print its August retail sales report.

CHF

The franc was still in a weak spot to most of its counterparts, as traders are starting to speculate on further easing from the SNB. Negative deposit rates have been suggested while the prospect of central bank intervention is also on the table. This might lead to a surge in volatility among franc pairs, especially if the SNB does take action.

JPY

The yen gave up more ground to its forex rivals, with traders moving more of their funds to the US dollar instead. USDJPY jumped past the 108.50 barrier to highs not seen in the past six years, indicating that a stronger rally might be seen. Data from Japan was better than expected today, as the trade balance marked a 0.92 trillion JPY deficit, smaller than the previous 1.02 trillion JPY shortfall and the projected 0.99 trillion JPY deficit.

Commodity Currencies (AUD, NZD, CAD)

The comdolls gave up ground to the dollar, with AUD/USD dipping back below the .9000 mark and NZD/USD testing the .8100 mark. New Zealand GDP was actually stronger than expected at 0.7% versus the estimated 0.6% growth figure, still lower than the previous 1.0% GDP reading. There are no major reports due from the comdoll economies today, with only medium-tier data such as foreign securities purchases up for release from Canada.

By Kate Curtis from Trader's Way