The summer doldrums are winding down this week, and a barrage of economic news is due in September, the most important of which will be the US NFP report and the Fed’s decision about tapering QE.
With the UK on public holiday and the economic calendar barren in Europe, currency markets were very quiet on the first trading day of the week. Most of the majors essentially flatlined, although markets appear to be entering the final week of the summer stall before coming back to life at the start of September.
Although Bloomberg reports that many European heads of state, including Francois Hollande (France) and Enrico Letta (Italy) remain on the job as they deal with the economic problems at home, market participants are decidedly less productive with many traders on both sides of the Atlantic off to the beach this week before the real barrage of economic data begins in September.
As a result, the week ahead is likely to produce thin trading, although it may be the final calm before the storm, because next week brings a slew of important economic reports, including the latest US non-farm payrolls (NFP) data, which could be the determining factor in the Fed's decision to taper asset purchases next month.
Key Eurozone Data Due Tuesday
Meanwhile, in today's action, the markets were essentially moribund with both the euro (EUR) and British pound (GBP) carving out very narrow 30-pip ranges against the US dollar (USD) as traders were content to let prices lie on a semi-holiday in European dealing. Tomorrow's German IFO report will be the key release from the Eurozone this week, and all indications are that it should surprise to the upside as PMI and sentiment data continue to be supportive.
A strong German IFO reading could help EURUSD rally back through the 1.3400 level, but the pair remains capped at 1.3450 and is unlikely to cross the key 1.3500 barrier this week unless the currency market becomes increasingly convinced that the Federal Reserve will indeed hold off on any tapering of quantitative easing (QE) measures.
USD/JPY Aims for 99.00 Again
The only data point of note today comes during the North American session with the release of the US durable goods report. Markets anticipate a 0.6% increase in the core number, and if the data meets or beats expectations, it should help USDJPY rally back towards the 99.00 level. The pair has been relatively weak today, opening lower in Asian session trade, then rallying along with the Nikkei only to give up its gains after Japanese stocks sold off.
The price action in USDJPY improved at the end of last week, as the pair was able to climb back above 99.00 on better risk sentiment and US yields, but its course remains very data-dependent. Most of the Japanese policy actions have already been discounted, and Prime Minister Shinzo Abe's "third arrow" attempts at restructuring the Japanese economy have been met with stiff resistance from all constituents and appear to have stalled.
By Boris Schlossberg of BK Asset Management