Week in FX Americas – Is Fed rhetoric about to change?

• Fed shifts interest rate projections
• Fed policy not to follow a "prescribed path"
• Japanese importers supports USD/JPY

This week the Fed retained its guidance that short-term interest rates will remain near zero for a "considerable time" after the bond buying program ends. Currently, the market now expects the remaining $15b's worth of QE to end next month. However, at the same time the Fed have shifted their interest rate projections significantly for both 2015 and 2016. The initial take by many was that the timing of a rate hike had been brought forward. The market's reaction was again to be long the dollar in response to the overnight guidance. But, has the market overreacted?

In the post FOMC press conference, Ms. Yellen seemed to go out of her way to reinforce that Fed policy would not follow a "prescribed path." It was not a surprise to hear that future moves would be data dependent and would not follow a preset timeline. The market will have to wait on the Fed to dive much deeper into US data to assess how the US economy and labor markets are really holding up and this requires time.

Fed's weaker wording

The Fed has been consistent in its harping on about the slack in the labor markets, mainly focusing on the high number of involuntary part-timers. The probability that the Fed will stick to the same script next month is very high. Assuming taper is completed in October, investors should expect the Fed to remove the phrase "after the asset purchase program ends." What the market will be focusing on will be the language to be used in December. Should we expect the Fed to change "considerable time" and replace it with something weaker?

In yen terms, appetite for the dollar remains strong, hitting a multi-year high Friday morning ¥109.38. Mostly Japanese importers and hedge funds have being supporting the dollar after missing the initial dollar rally. Investors who have been long dollars for some time are expected to lighten a percentage of their positions ahead of the ¥110 level, while hoping for a decent pull back to reestablish fresh 'long' dollars again at better levels. Be forewarned, this time around the dollar's upward momentum seems much stronger than the USD/JPY rally last year. It's been supported by the dollar's strength across the board.

What to expect next week

Whatever happens, the market will miss the Scots. Their national sovereignty debate on its own brought back some much needed volume and volatility to the forex space. In a matter of 10 days, the pound has been trading robustly within the £1.6052-£1.6645 range.

European Central Bank President Mario Draghi kick starts the week on Monday testifying on monetary policy before the European Parliament's Economic and Monetary Committee in Brussels. Flash manufacturing comes to us from China, France, and Germany, and by midweek, Germany will also release its latest Ifo business climate results.

Meanwhile Down Under, traders will be listening to Reserve Bank of Australia Governor Glenn Stevens speak at the Melbourne Economic Forum. Investors with long AUD carry-trade positions will want to know what he has to say as he has a penchant for talking the AUD down to low levels.

The week will end with U.S. durable goods orders and weekly jobless claims on Thursday.