When September Comes:
Yes, it’s finally here. Recent market turmoil has meant that markets are now only pricing in a 28% chance that the Fed raises rates on Thursday, but are up at 59% for the Fed to move in December.
With Fed policymakers week after week talking up market turmoil and a slowdown in China as reasons for a wait and see approach come Thursday, markets have had plenty of reasons to push out their September bets.
USD longs have been cut heading into Thursday’s decision, with the trend change on USDX confirmed with no higher high. I am expecting price to come back down a little more and continue to flag into the decision before any further up leg.
Japanese Juggles:
In the shadow of FOMC week, we also have major central bank meetings in Japan and Switzerland. With no interest-rate surprises expected from either the BoJ or SNB, all eyes stay fixed on the US, but for Asian traders, keeping an eye on Japan is definitely worthwhile.
Both economic growth and inflation continues to lag despite the BoJ’s 80 trillion yen per year asset-buying program. Something that is concerning to policymakers on the island who are also trying to be wary of any increases which could further weaken the JPY and heap more pressure on already high import prices.
In the midst of QE, USD/JPY has put in a massive bullish trend. As things have started to slow down, price has slowed down and a range has formed. With price smack bang in the middle of this range right now, the risk:reward on both sides isn’t great, but with QE increases in the near term looking unlikely, upside could be expected to continue to be capped into FOMC.
On the Calendar Monday:
CNYIndustrial Production y/y (6.1% v 6.3% expected)
CNY Fixed Asset Investment ytd/y (10.9% v 11.2%)
Quiet one on the data front to start the week, but markets still have Chinese numbers from the weekend to digest.
Chart of the Day:
Head of Commodity research at Goldman Sachs (NYSE:GS) Jeffrey Currie has had this to say about Oil in a research report this weekend:
“The oil market is even more oversupplied than we had expected and we now forecast this surplus to persist in 2016.”
“The potential for oil prices to fall to such levels, which we estimate near $20/bbl, is becoming greater.”
Still capped by that descending trend line, if price can trade below the marked zone, then any retests could be a good opportunity to rejoin the bearish trend.
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