No surprise out of the FOMC, USD in demand

Market Brief

The Fed kept its policy rates steady and reduced the pace of its monthly asset purchases by an additional (regular) 10 billion dollars. The accompanying statement remains highly accommodative for considerable time after the end of the asset purchases program. The only distinction has been the inflation moving “closer to long-run target”, versus “below” the objective at last meeting. Data-wise, the US second quarter GDP surprised greatly on the upside in yesterday’s advance release. According to advance estimates, the second quarter annualized growth should recover to 4.0% (vs. 3.0% exp. & -2.9% in Q1). The ADP employment report however came in softer than expected. The US economy added 218’000 new private jobs in July (versus 230K exp. & 281K last). The US 10-year yields rallied to 2.5642% post-FOMC, the DXY index spiked to its highest levels since September 2013 (81.500+). The July unemployment rate and nonfarm payrolls are due on Friday. The consensus stands at 231K versus 288K printed a month ago.

USD/JPY rallied to 103.09 alongside with the US yields post-FOMC. Solid resistance pushed the pair back to 102.73/88 band in Tokyo. The positive trend gains momentum, option bets are mixed at 103.00, bids abound at 103.25/103.50/104.00 for today expiry. Talks on 2.0% corporate tax cut by April 2015 should sustain the upmove. EUR/JPY tests the 21-dma (137.63), yet the bullish attempts should remain capped by decent selling pressures in EUR. Solid offers are eyed at 138.00/50.

The broad based USD demand pulled EUR/USD down to 1.3367 in New York. Corrective bids jumped in to push the pair back toward 1.3400 given the oversold conditions. The bias remains comfortably negative, option barriers trail above 1.3400+. The first target stands at 1.3296 (November 2013 low). EURGBP remains offered at 21-dma (0.79241). More resistance is eyed at 0.79541 (June-July downtrend top).

In Australia, the import and exports prices slumped more-than-expected in 2Q (import prices -3.0% vs. -1.5% exp. & 3.2% last, exports prices -7.9% vs. -4.0% exp. & 3.6% last), while building approvals contracted by 5.5% in month to June. Combined to broad USD strength, AUD/USD advances towards 0.9300 (lowest since June 5th), pulling out support at 100-dma (0.9322). Bids are seen at 0.9300+. The key support is placed at distant 0.9200/09 (Fibonacci 50% on Oct’13 – Jan’14 drop).

After hitting 0.8453 in New York, NZD/USD quickly recovers above 0.8500. The oversold conditions suggest more upside correction at the current levels. Option related bids should keep the downside safe above 0.8450/75 area.

In Argentina, no agreement has been reached on 539 million dollar interest payments missed on yesterday deadline; Argentina is just a couple of hours away from defaulting. This will be the second default in 13 years. The economic calendar of the day is German June Retail Sales m/m & y/y, French June Consumer Spending and PPI m/m & y/y, German July Unemployment Rate, Italian July (Prelim) CPI m/m & y/y , Italian June (Prelim) Unemployment Rate and Italian June PPI m/m & y/y, Euro-Zone July CPI y/y estimate and Core CPI y/y preliminary reading, Euro-Zone June Unemployment Rate, Canadian May GDP m/m & y/y, US July 26th Initial Jobless Claims & July 19th Continuing Claims, US July ISM Milwaukee and US July Chicago Purchasing Manager.