Fed: Here we go again, BCB ready to defend the real

Market Brief

Just like her colleagues from the Federal Reserve, Janet Yellen reiterated her call for a rate before the end of the year. To support her view, Fed’s chairwoman argued that the recent weakness in US inflation levels is primary due to low energy prices and weak import prices due to a strong dollar. That was all it took to wake dollar bulls up. The dollar index jumped 0.41% to 96.30 as the single currency suffered the biggest sell-off among G10 currencies. EUR/USD dropped 0.65% before stabilising around 1.1170. Janet Yellen also added that she was confident that inflation will return to 2% over the next few years and that, therefore, the prudent strategy is to start increasing rates gradually before reaching the Fed’s target.

Yesterday morning, USD/NOK jumped 2.72% to 8.50 as the Norges Bank cut the deposit rate by 25bps to 0.75% on growth concerns. Moreover, the Norwegian central bank left the door wide open for further rate cut, arguing that the economy is getting severely hit by persistently low crude oil prices.

Japan’s August inflation report was released earlier this morning and it wasn’t pretty. Despite Kuroda’s boundless optimism, Japan falls back into deflation as the country’s core inflation gauge fell 0.1%y/y from 0% a month earlier. After a promising start in 2013, the economy is running out of steam and seems unable to return to growth without the central bank’s extra push. We therefore expect that the BoJ will increase the size of the stimulus at its annual meeting. We remain bullish USD/JPY on the medium-term, however we do not rule out a temporary strength of the JPY on the short-term.

As a result, Japanese shares rose substantially in Tokyo with the Nikkei and the Topix in dex jumping 1.76% and 1.88% respectively. Elsewhere in the region, Chinese mainland shares kept sliding lower, The Shanghai Composite fell another 1.86% while its tech-heavy counterpart, the Shenzhen Composite is sending a strong bearish signal as the 50dma is crossing the 200dma to the downside. The gauge is down 3.11%. In Hong Kong, the Hang Seng edged up 0.23% while in South Korea the Kospi index fell 0.22%.

The Brazilian real jumped 4.44% against the USD dollar, its biggest rally in seven years, as Governor Tombini said he was ready to use “all instruments” to put an end to the real’s ongoing massive sell-off. USD/BRL fell from 4.2478 to 3.9507 in São Paulo as Tombini and Joachim said that the BCB would use its FX reserves to protect the real.

Today traders will be watching annualized final Q2 GDP, Q2 PCE, Markit PMIs and University of Michigan sentiment index from the US.

Global Indexes	Current Level	% Change
Nikkei 225 Index	17880.51	1.76
Hang Seng Index	21144.44	0.23
Shanghai Index	3084.3	-1.86
FTSE futures	6026.5	1.76
DAX futures	9614	2.11
SMI Futures	8401	1.53
S&P future	1931.5	0.66

Global Indexes	Current Level	% Change
Gold	1146.87	-0.62
Silver	15.11	-0.28
VIX	23.47	6.06
Crude wti	45.33	0.94
USD Index	96.31	0.33

Today's Calendar	Estimates	Previous	Country/GMT
SP Jul Total Mortgage Lending YoY	-	21.80%	EUR/07:00
SP Jul House Mortgage Approvals YoY	-	26.30%	EUR/07:00
SP Aug PPI MoM	-	0.10%	EUR/07:00
SP Aug PPI YoY	-	-1.30%	EUR/07:00
SW Aug Household Lending YoY	-	7.10%	SEK/07:30
EC Aug M3 Money Supply YoY	5.30%	5.30%	EUR/08:00
EC Aug M3 3-month average	5.20%	5.10%	EUR/08:00
BZ sept..22 FIPE CPI - Weekly	0.48%	0.47%	BRL/08:00
IT Aug Hourly Wages MoM	-	0.10%	EUR/08:00
IT Aug Hourly Wages YoY	-	1.20%	EUR/08:00
UK Statement from the BOE's FPC on September 23rd Meeting	-	-	GBP/08:30
BZ Sep FGV Construction Costs MoM	0.15%	0.80%	BRL/11:00
BZ Aug PPI Manufacturing MoM	-	0.68%	BRL/12:00
BZ Aug PPI Manufacturing YoY	-	7.62%	BRL/12:00
US 2Q T GDP Annualized QoQ	3.70%	3.70%	USD/12:30
US 2Q T Personal Consumption	3.20%	3.10%	USD/12:30
US 2Q T GDP Price Index	2.10%	2.10%	USD/12:30
US 2Q T Core PCE QoQ	1.80%	1.80%	USD/12:30
UK BOE's Gareth Ramsay Speaks in London	-	-	GBP/13:00
US Fed's Bullard to Speak on Monetary Policy in St. Louis	-	-	USD/13:15
US Sep P Markit US Composite PMI	-	55.7	USD/13:45
US Sep P Markit US Services PMI	55.6	56.1	USD/13:45
US Sep F U. of Mich. Sentiment	86.5	85.7	USD/14:00
US Sep F U. of Mich. Current Conditions	-	100.3	USD/14:00
US Sep F U. of Mich. Expectations	-	76.4	USD/14:00
US Sep F U. of Mich. 1 Yr Inflation	-	2.90%	USD/14:00
US Sep F U. of Mich. 5-10 Yr Inflation	-	2.80%	USD/14:00
EC ECB's Weidmann Holds Press Conference in Florence	-	-	EUR/17:15
US Fed's George Speaks on Economy, Policy in Omaha, Nebraska	-	-	USD/17:25
BZ Aug Formal Job Creation Total	-74900	-157905	BRL/18:00
IN Aug Eight Infrastructure Industries	-	1.10%	INR/22:00

Currency Tech

EURUSD
R 2: 1.1561
R 1: 1.1330
CURRENT: 1.1140
S 1: 1.1017
S 2: 1.0809

GBPUSD
R 2: 1.5819
R 1: 1.5659
CURRENT: 1.5235
S 1: 1.5165
S 2: 1.5089

USDJPY
R 2: 125.86
R 1: 121.75
CURRENT: 120.60
S 1: 118.61
S 2: 116.18

USDCHF
R 2: 1.0240
R 1: 0.9903
CURRENT: 0.9808
S 1: 0.9513
S 2: 0.9259

• S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot