Weekly Outlook: 2014, September 14 - September 21

Forex Weekly Outlook September 15-19

Inflation data in the UK and the US, German Economic Sentiment, US Federal Funds Rate and FOMC Press conference, GDP in New Zealand, US unemployment claims, Scottish Independence Vote are the major topics in Forex calendar. Check out these events on our weekly outlook.

Last week US jobless claims increased 11,000 last week, reaching 315K, exceeding the revised 304K posted in the week before. However, the 4 week moving average was little affected, rising 750 to 304K, 7% less than a year ago and still behind prerecession levels. Despite sluggish, hiring in August, the general trend is positive. The economy has generated an average of 215,000 jobs a month so far in 2014, up from 194,000 in 2013 and wage growth is expected to rise in the coming months alongside economic expansion. Will this trend continue?

1. Haruhiko Kuroda speaks: Tuesday, 5:30. BOE Governor Haruhiko Kuroda will press conference in Osaka. Market volatility is expected.
2. UK inflation data: Tuesday, 8:30. Annual inflation rate dropped more than expected in July, reaching 1.6% from 1.9% in June, lowering the chance of an interest rate rise in 2014. Economists expected a smaller decline to 1.8%. The main cause for the sharp fall was price reduction in summer clothing. Inflation was held below the BOE’s 2% target for the seventh consecutive month, indicating the UK economy is stabilizing. However, cost of living and income tax are still too high compared to wage growth. Annual inflation is expected to reach 1.5% in August.
3. Eurozone German ZEW Economic Sentiment: Tuesday, 9:00. German economic sentiment plunged in August to 8.6 from 27.1 in July. The 18.5 fall brought sentiment to its lowest level since December 2012. Analysts expected a more modest decline to 18.2 points. The Current Conditions Index dropped to 44.3 from 61.8 in July, missing predictions for a decline to 55.5. The ongoing geopolitical tensions are the main reason for the sharp decline. Economic climate is expected to decline further to 5.2.
4. US PPI: Tuesday, 12:30. U.S. producer prices inched marginally in July rising 0.1%, in line with market forecast, following a 0.4% gain in the previous month. The slow advance resulted from a decline in the cost of energy goods, lowering prices of finished goods. Despite the volatility in the PPI series, a trend of inflation is gathering pace, easing the Central Bank’s concerns. The government introduced three new indexes to the PPI series focusing on personal consumption. Personal consumption less food and energy rose 0.2% in July after a 0.3% gain in June. Excluding food, energy and trade services, the index increased 0.2% after a similar rise in June. Producer prices are predicted to gain 0.1% in August.
5. UK employment data: Wednesday, 8:30. The number of people claiming unemployment benefits in the U.K. contracted more-than-expected in July, declining a seasonally adjusted 33,600, after a 39,500 fall in the previous month, lowering the Unemployment level to 6.4% in the three months to June. Economists expected a smaller decline of 29,700. Meanwhile, the average earnings index fell 0.2% in the three months to June after a 0.4% gain in the three months to May. The number of job seekers is expected to decline by 29,700 in August.
6. US inflation data: Wednesday, 12:30. U.S. consumer prices inched 0.1% in July, in line with market forecast, following a 0.3% rise in June. On a yearly base, consumer prices gained 2.0%, compared to June’s increase of 2.1%. Excluding the volatile food and energy costs, July core consumer prices gained 0.1% after posting the same gain in June. On an annual basis, core CPI rose 1.9%, unchanged from June. Economists expect core CPI to rise above the 2% target next year, prompting the Fed to raise rates in March. U.S. consumer prices is expected to grow by 0.1% whiel Core CPI is predicted to gain 0.2%.
7. FOMC Economic Projections, Rate statement and Press conference: Wednesday, 18:00. The Federal Reserve downgraded its outlook for the U.S. economy in its June meeting but continued with tapering as planned. Growth forecast was reduced to 2.1% from 2.3% due to the harsh winter in which the economy contracted 0.1%. However, Fed Chair Janet Yellen stated economic activity has rebounded in the second quarter. The Fed voted unanimously to continue the cut the monthly purchases down to $35 billion. The labor market continues to improve together with underlying strength in the broader economy. Economists believe inflation will rise once the Unemployment rate reaches 6%. Regarding interest rate increase, the Fed may stall its planned hike until reaching solid growth.
8. New Zealand GDP: Wednesday, 22:45. New Zealand economy expanded 1.0% in the first quarter following a revised 1.0% in the last quarter of 2013. Construction sector was the main contributor to expansion, rising 12.5%, the largest since March 2000. Retail trade edged up 1.4% and 4.4% on a yearly base. Mining rose 6.3% in the first quarter. Household spending remained unchanged, despite the 7.3% gain in real gross national disposable income, the largest ever annual rise. Exports increased 3.1% for the quarter driven by an 18.6% rise in agriculture and fishing products.
9. Switzerland rate decision: Thursday, 7:30. The Swiss National Bank (SNB) decided to maintain its Libor target at the historically-low range of 0% to 0.25%, in line with market forecast. The Central bank stated that economic growth picked up in the first quarter, after a softer fourth quarter last year. However, the Bank also noted that production capacities are still not fully utilized and expects a pickup in economic activity during the coming quarters. The downside risks remained unchanged including weaker-than-expected growth in major economies, geopolitical tensions, Eurozone financial difficulties. No change in rates is expected.
10. US Building Permits: Thursday, 12:30. US building permits surged 15.7% in July, reaching a seasonally adjusted annual pace of 1.09-million units. The rise came after two consecutive declines. Economists expected starts to rise to a 969,000-unit rate. The housing market softened after the rise in interest rates. The government reported last month that the homeownership rate hit a 19-year low in the second quarter, while the rental vacancy rate was the lowest in more than 19 years. The number of Building permits is expected to reach 1.04 million units this time.
11. US Unemployment Claims: Thursday, 12:30. The number of Americans seeking U.S. unemployment benefits increased by 11,000 last week to 315,000. However, the four-week average inched up only 750 to 304,000. The average remained 7.1% lower than last year. Unemployment benefits data can be volatile around holidays and could explain the 11,000 rise. Overall, the Us labor market continues to strengthen with a clear growth trend. Jobless claims are expected to grow by 312,000 this week.
12. Janet Yellen speaks: Thursday, 12:45. Federal Reserve Chair Janet Yellen will speak in Washington DC. She may talk about the US labor market and the prospects of a rate hike following the taper period. Market volatility is expected.
13. US Philly Fed Manufacturing Index: Thursday, 14:00. Business conditions in the Philadelphia area improved in August surging to 28 from 23.9 in July. This was the third consecutive rise and posting the highest reading since March 2011. Economists expected a more modest rise to 19.7 points. However despite the less encouraging new orders index, the general tone is positive. Business conditions in the Philadelphia area are expected to decline to 22.8.
14. Scottish Independence Vote: Thursday. In September 18, Scottish voters will decide whether to split from the United Kingdom or stay as one country with England, Wales and Northern Ireland. A YouGov poll conducted for The Sunday Times and released on Sunday showed the “yes” vote at 51% and “no” at 49%. Scotland’s first minister and SNP leader Alex Salmond has been a vocal proponent of independence. British Prime Minister David Cameron wants Scotland to remain part of an undivided United Kingdom of Great Britain and Northern Ireland. Uncertainty over the outcome of the Scottish referendum weakened the pound.

Dollar’s Longest Run in Half a Century Hinges on Fed Decision

Fundamental Forecast for Dollar: Neutral

• The Fed is set Wednesday to Taper its QE3 further and release updated economic and interest rate forecasts
• A FOMC effort to realign policy forecasts can cause set off for more than just Dollar volatility…

The US Dollar’s incredible climb was ramped this past week. The 1.2 percent surge from the Dow Jones FXCM Dollar Index (ticker = USDollar) was the largest in 10 months. The acceleration is just as impressive as the currency’s persistence. With Friday’s close, the greenback has closed nine consecutive weeks of advance. That is the longest advance on records going back to 1999 - when the Euro was introduced. Using the ICE Dollar Index’s extended history, a similar run shows that the nine-count matches the longest advances going back to 1967…nearly 50 years. Momentum looks self-sustaining, and few things seem as if they could curb this move much less reverse it decisively. But, it just so happens that one of the most capable fundamentals cues is dead ahead.

Wading through the most loaded global economic calendar in months – if not longer – it is the FOMC rate decision that takes top honors for potential market impact in terms of localized volatility as well as turning the tides of the entire financial markets. This particular meeting is expected to bring the second-to-last Taper by trimming it further down to $15 billion per month. However, that isn’t what the markets are holding their breath for. This gathering also happens to be the quarterly event whereby the central bank releases its updated forecasts on inflation, employment and interest rates as well as where Fed Chair Janet Yellen holds the regular press conference.

The tone that the central bank strikes with this meeting will prove critical to the dollar, one way or the other. A nine-week, 4.4 percent rally for the USDollar alongside a three-year high for US 2-year Treasury yields suggests market participants expect the central bank is gearing up for a near-term withdrawal of accommodation (conservative language for ‘rate hikes’). Therefore, if the Fed fails to upgrade its forecasts or in some way convey a more hawkish demeanor; there is pent up speculation that can be unwound.

On the other hand, the currency’s performance does not preclude room for further appreciation on the basis of an increased willingness to return to hikes. Looking out the yield curve, we still see skepticism and complacency. Perhaps the most prominent indication that there is pent up potential here are the Fed Funds futures. The rate products used to hedge changes in interest rates are significantly discounting the FOMC’s own forecasts. Where the last June forecasts projected a benchmark rate of 1.13 percent at the end of 2015 and 2.50 through the end of 2016, these futures currently price in 0.77 and 1.82 percent respectively.

Looking for changes in the forecasts and combing through the group’s verbiage, we should see whether the group is making a material effort to guide the market’s expectations. In the recent past, we have seen both FOMC members and research papers note that the market’s expectations for monetary policy are misaligned from the central bank’s own views. That poses a serious risk for policy officials as the eventual shift will prove more damaging to the stability of the financial system. Steady and measured adjustment is far preferable to a central banker. Efforts may be made to specifically close this gap.

While most FX traders will be gauging this event for its impact on the US Dollar, it will be important to remember just how substantial is scope is. The Fed’s stimulus efforts have played an early and pivotal role in establishing the low volatility, high leverage and low participation complacency conditions we find ourselves in today. If investors recognize a change in the financial landscape, the repercussions can prove far more pervasive than just a dollar correction. We may finally see complacency collapse.

Euro Faces Volatility as External Factors Compound Onset of TLTRO

Fundamental Forecast for Euro: Neutral

• Euro May Bounce on Strong Demand at First ECB TLTRO Operation
• FOMC Announcement, Scotland Referendum May Stoke Euro Volatility

Euro selling pressure appears to be waning at last after eight consecutive weeks of losses that brought the single currency to the lowest level in 14 months against the US Dollar. The operative question going forward is whether this precedes a period of consolidation before a reinvigorated push downward or a correction upward. The answer will be found in the markets’ response to a hefty dose of high-profile event risk on the domestic and the external fronts in the week ahead.

Looking inward, thespotlight is on the first ECB TLTRO operation due to be held on September 18. The effort represents one of many easing tools that Mario Draghi and company have deployed in recent months in an attempt to check the slide toward deflation and repair the seemingly broken monetary policy transmission mechanism that has made the central bank’s prior attempts at stimulus largely ineffective. The scheme envisions offering Eurozone banks cheap capital tied up with conditions pushing them re-lend it while passing on low borrowing costs to the real economy, stoking activity and boosting prices. The key variable in play will be the size of the liquidity provision that is ultimately taken up by banks tapping the facility. In a somewhat counter-intuitive turn of events, a large capital allocation seems likely to offer support to the Euro.

The ECB has seemingly done everything it could muster in terms of expanding accommodative monetary policy without embarking on “classic” QE: the purchase of sovereign debt with newly minted money. Indeed, the TLTRO effort will be aided by a record-low baseline lending rate, a negative deposit rate, as well as purchases of asset-backed securities and covered bonds. With that in mind, strong uptake on the TLTRO operation may be seen as giving policymakers a bit of breathing room to shift into wait-and-see mode without feeling pressure to do more, a move that could prove functionally difficult given strong opposition from the likes of Germany and undermine the ECB’s credibility. That may in turn fuel speculation that single currency has fallen substantially enough to price in the degree of easing already on the table, prompting a round of profit-taking on highly elevated speculative short positions and sending the common unit upward.

Externally, the first major item of note is the FOMC policy announcement. September’s outing will be accompanied by the release of an updated set of forecasts for key metrics of US economic activity as well as press conference from Chair Janet Yellen. The Fed has long warned about complacently buoyant risk appetite as the end of QE3 looms ahead next month. If policymakers opt to shake things loose with upbeat activity projections and/or a hawkish outing from Ms Yellen, this may put the Euro’s increasingly unattractive yield profile in stark relief and reinvigorate bearish momentum.

The second is the Scottish Independence referendum. Opinion polls ahead of the ballot essentially point to a 50/50 chance that Scotland will secede from the UK. This implies that – whatever the final result – a surge of volatility is likely to follow the results as those on the wrong side of the outcome are forced to readjust positions. A final vote in favor of independence is likely weigh on Sterling, sending capital fleeing to alternatives. The Euro looks like a natural beneficiary in such a scenario. Needless to say, a victory for the “no” campaign will probably yield the opposite result.

Japanese Yen Remains Strong Sell Until these Factors Change

Fundamental Forecast for Japanese Yen: Bearish

• Japanese Yen remains a strong sellversus the US Dollar
• Strong jump in volume helps confirm USDJPY breakout

The Japanese Yen broke convincingly lower versus the US Dollar as the USDJPY set its single-largest weekly advance on the year. We believe the currency pair remains an attractive buy on the impressive break higher. What drove the Yen and, more importantly, what may cause further volatility in the days and weeks ahead? Put simply: a divergence. On the one hand you have the Bank of Japan widely expected to ease monetary policy further through the end of the year. Across the Pacific Ocean, the US Federal Reserve is actually tightening monetary policy. The interest rate-sensitive USDJPY will likely track higher as the two central banks go in opposite directions.

The week ahead should prove particularly interesting given a highly-anticipated US Federal Open Market Committee monetary policy decision, while two planned speeches from BoJ Governor Kuroda could likewise drive USD/JPY volatility. Many traders expect FOMC officials will raise growth and employment forecasts and remove the key term “for a considerable time” from the future of interest rate hikes. Strong Dollar gains leave room for disappointment, but we think recent economic data supports calls for further tightening in monetary policy.

BoJ Governor Kuroda is comparatively less likely to force big moves in the USDJPY, but traders will pay close attention to any hints that the Japanese central bank will boost quantitative easing purchases through upcoming meetings. Note: unless he specifically says the BoJ will not do more QE, we believe a JPY bounce seems relatively unlikely. The only caveat to our calls for continued USDJPY strength is simple: markets can’t go in one direction forever. It’s entirely possible and perhaps even likely that the Japanese Yen corrects higher (USDJPY lower) before its next major move. Yet remaining above key resistance-turned-support at ¥105.60 leaves us focused on continued USDJPY strength.

GBP/USD Vulnerable on Dovish BoE Minutes, Scotland Independence

Fundamental Forecast for Pound: Bearish

• British Pound Looking to BOE Commentary to Fuel Recovery
• British Pound Won’t Go Quietly - Risk of Bounce Grows

The British Pound is likely to face heavy volatility in the week ahead as the Bank of England (BoE) publishes the policy meeting minutes, while Scotland takes to the polls to vote for independence on September 18.

It seems as though we will see another 7-2 split within the Monetary Policy Committee (MPC) as Ben Broadbent and David Miles remain in no rush to normalize monetary policy, but the fresh batch of central bank rhetoric may continue to prop up interest rate expectations as Governor Mark Carney retains an upbeat view for the U.K. economy. Despite the risk of Scotland leaving the U.K., it seems as though the central bank will retain its game plan to normalize monetary policy as Mr. Carney sees the first rate hike coming in the Spring of 2015, and a more upbeat tone from the MPC may generate a larger recovery in the British Pound as the BoE moves away from its easing cycle.

At the same time, the Federal Open Market Committee (FOMC) policy meeting will also be closely watched as Janet Yellen and Co. look to halt its asset-purchase program in October, but we would need to see a material shift in the forward-guidance to see a major market reaction as the central bank remains reluctant to move away from the zero-interest rate policy (ZIRP).
With that said, the Scottish Referendum holds the biggest risk for surprise as independent polls continue to highlight the threat for a breakup, and the outcome is likely to have a material impact on the near-term outlook for the GBP/USD as a departure from the monetary union may spark a material shift in the policy outlook.

Nevertheless, there are tentative signs of a more meaningful rebound in the GBP/USD as the Relative Strength Index (RSI) comes off of oversold territory, but we would need to see a break of the bearish momentum along with a move and closing price above former support (1.6280-1.6300) to favor a more bullish outlook for the pound-dollar.

AUD Remains at Risk as the Return of Volatility Caps Carry Demand

Fundamental Forecast for Australian Dollar: Bearish

• AUD/USD Downside Risks Remain Following Break of Long-Held Range
• Surge In Implied Volatility Threatens To Sap Carry Trade Demand
• Bearish Technical Pattern Casts The Spotlight On 90 US Cents

The dam wall may have finally broken for the Australian Dollar following the currency’s plunge below the 92 US cent handle. The long-held line in the sand for the AUD/USD was crossed amid a parabolic increase in FX market volatility and firming Fed policy tightening bets.

Over the coming week, a void of major local economic data alongside what is likely to be another rehashed set of RBA Minutes may leave the currency lacking catalysts to spark a recovery. The threshold for fresh news flow to yield a shift in sentiment is high, as demonstrated by the lackluster response from traders to the phenomenal Australian August jobs report.

On balance recent local data and rhetoric from the Reserve Bank reinforces the prospect that rates will remain on hold over the near-term. Yet the greatest risk posed to the Aussie is not from a shift in RBA policy expectations and a waning of its interest rate advantage. Rather the bigger threat has proven to be the looming return of general market volatility.

A persistent surge in expectations for large swings amongst the major currencies would make the Aussie’s relatively small yield advantage a much less attractive (and riskier) proposition. This may open the door to a mass exodus from carry trades that had built on anticipation of a sustained lull in market activity. Long positioning amongst speculators is at its highest since April 2013 according to futures data. Which suggests that once the floodgates open, they may be difficult to close.

From a technical standpoint the break of the 92 US cent handle and ‘head and shoulders’ pattern ‘neckline’ casts the spotlight on the psychologically-significant 0.9000 floor.

Gold Plummets to Eight-Month Lows on Persistent USD - All Eyes on FOMC

Fundamental Forecast for Gold:Bearish

• Gold, Silver Dumped As USD Flexes Its Muscles Ahead Of Retail Sales Data
• Gold Prices Probe 8-Month Low, SPX 500 Stuck in a Holding Pattern

Gold prices are markedly lower this week with the precious metal off by more than 3% to trade at $1229 ahead of the New York close on Friday. The losses come amid continued strength in the greenback with the Dow Jones FXCM US Dollar Index pressing into fresh yearly highs not seen since August of 2013. While the broader outlook for gold remains weighted to the downside, near-term the metal is coming into support as investors shift their focus to next week’s key event risk from the Fed.

Easing geopolitical tensions in Ukraine, persistent strength in the dollar and improving US economic data has continued to weigh on demand for gold as prices fell to eight month lows this week. Looking ahead to next week, all eyes will be on the Federal Reserve on Wednesday with the August inflation numbers and the FOMC rate on tap. Should the policy statement cite a more upbeat assessment for growth and inflation, look for gold to remain under pressure as interest rate expectations keep a firm footing under the greenback. Such a scenario would likely see US Dollar denominated assets slide as US Treasury rates move higher.

On the other hand, should committee members cite skepticism or concerns over the recent miss seen in last week’s dismal non-farm payroll print, bullion could find some near-term demand/profit taking, with prices checking a key support barrier on Friday before retreating higher. As we’ve continued to note, the most significant possible supportive variable / risk to our outlook for gold “would be a more substantial sell-off in stocks or sudden escalations in geopolitical tensions both in Europe or the Middle East with such a scenario likely to fuel risk-off flows into the perceived safety of the yellow metal. That said, the technical picture remains rather bleak.”

From a technical standpoint, the outlook for gold remains weighted to the downside with our bearish invalidation level now brought down to 1258/60. A breach above this level shifts the focus back to the topside targeting key resistance at $1280/82 and the 200-day moving average at $1286. Near-term support rests at the 76.4% retracement taken from the late-December advance at $1229 with a break below targeting support objectives at $1206 and $1193. Note that the daily momentum signature has now dropped to its lowest levels since early June when the metal based around the $1243 with the drop into oversold territory this week suggesting that a larger decline off the July highs remain in focus. Look for Wednesday’s event risk to offer a catalyst with our broader bias favoring selling rallies sub $1260.

Forex - Weekly outlook: September 15 - 19

The U.S. dollar ended its ninth successive weekly gain against a basket of other major currencies on Friday as expectations for an early hike in U.S. interest rates continued to bolster investor demand.

The US Dollar Index, which tracks the performance of the greenback versus a basket of six other major currencies, was last down 0.18% to 84.32, but ended the week with gains of 0.39%. It was the longest series of successive weekly gains in more than 17 years.

The dollar rallied to fresh six-year highs against the yen on Friday, with USD/JPY up 0.23% to 107.33 at the close. For the week, the pair added 2.05%.

Expectations that the Federal Reserve is growing closer to raising interest rates continued to boost the dollar against the yen and the euro, with the Japanese and European central banks likely to stick to a looser monetary policy stance.

A study by the San Francisco Fed published on Monday indicated that central bank officials see rates rising sooner than markets expect.

The Fed was expected to cut its asset purchase program by another $10 billion at its upcoming policy meeting next week which would keep it on track for winding up the program in October, and to start raising interest rates sometime in mid-2015.

Data on Friday showing that U.S. retail sales rose in August and another report showing that consumer sentiment rose to a 14-month high in September underlined the view that the economic recovery is deepening.

The yen remained under pressure after Bank of Japan Governor Haruhiko Kuroda said Thursday that the bank would be prepared to immediately loosen monetary policy or implement other measures if its 2% inflation target becomes difficult to meet.

EUR/USD was up 0.33% to 1.2964 late Friday, holding above the 14-month trough of 1.2858 reached on Tuesday.

The single currency has remained under pressure since the European Central Bank unexpectedly cut rates to record lows on September 4 and unveiled new easing measures in a bid to shore up inflation in the euro area.

The pound also pushed higher against the dollar on Friday, with GBP/USD up 0.18% to 1.6267 in late trade. The pair fell to 10-month lows on Wednesday as the prospects of Scottish independence rattled financial markets.

However, uncertainty over what currency an independent Scotland would use, as well as concerns over how much of the U.K. national debt it would take on looked likely to cap sterling’s gains ahead of the September 18 referendum.

In the week ahead, investors will be focusing on the outcome of Wednesday’s Fed policy meeting. Fed Chair Janet Yellen was to hold a press conference following the meeting.

Market participants will also be closely watching the outcome of Thursday’s independence referendum in Scotland.

Monday, September 15

• Markets in Japan are to remain closed for a national holiday.
• Switzerland is to produce data on producer price inflation.
• In the euro zone, Germany’s Bundesbank is to publish its monthly report.
• The U.S. is to release reports on manufacturing activity in the Empire State and industrial production.

Tuesday, September 16

• The Reserve Bank of Australia is to publish the minutes of its latest policy meeting, which contain valuable insights into economic conditions from the bank’s perspective.
• The U.K. is to publish data on consumer price inflation, which comprises the majority of overall inflation.
• The ZEW Institute is to release its closely watched report on German economic sentiment, a leading indicator of economic health.
• Canada is to release data on manufacturing sales.
• The U.S. is to produce data on producer price inflation.

Wednesday, September 17

• New Zealand is to publish data on the current account.
• The U.K. is to publish data on the change in the number of people employed and the unemployment rate, as well as data on average earnings. In addition, the Bank of England is to release the minutes of its latest policy meeting.
• The euro zone is to release revised data on consumer price inflation.
• The U.S. is to produce data on consumer prices. Later Wednesday, the Federal Reserve is to announce its federal funds rate and publish its rate statement. Fed Chair Janet Yellen is to hold a press conference following announcement.

Thursday, September 18

• New Zealand is to publish data on gross domestic product, the broadest indicator of economic activity and the leading measure of the economy’s health.
• Japan is to release data on the trade balance, the difference in value between imports and exports.
• Switzerland is also to release a report on the trade balance. At the same time, the Swiss National Bank is to announce its libor rate and publish its monetary policy assessment.
• The U.K. is to release data on retail sales, the government measure of consumer spending, which accounts for the majority of overall economic activity. Meanwhile, Scotland is to hold its independence referendum.
• The U.S. is to produce a flurry of economic data, including reports on initial jobless claims, building permits, housing starts and manufacturing activity in the Philadelphia region.

Friday, September 19

• Canada is to round up the week with data on consumer prices and wholesale sales.

USD/JPY weekly outlook: September 15 - 19

The U.S. dollar rose to its highest level in just over six years against the yen on Friday as expectations that the Federal Reserve is growing closer to raising interest rates continued to underpin investor demand for the greenback.

USD/JPY was up 0.23% to 107.33, the highest level since October 2008 in late trade. For the week, the pair added 2.05%.

The pair was likely to find support at the 106.50 level and resistance at around 108.25.

Expectations that the Federal Reserve is growing closer to raising interest rates continued to boost the dollar against the yen, with the Japanese central bank likely to stick to a looser monetary policy stance.

A study by the San Francisco Fed published on Monday indicated that central bank officials see rates rising sooner than markets expect.

The Fed was expected to cut its asset purchase program by another $10 billion at its upcoming policy meeting next week which would keep it on track for winding up the program in October, and to start raising interest rates sometime in mid-2015.

Data on Friday showing that U.S. retail sales rose in August and another report showing that consumer sentiment rose to a 14-month high in September underlined the view that the economic recovery is deepening.

The yen remained under pressure after Bank of Japan Governor Haruhiko Kuroda said Thursday that the bank would be prepared to immediately loosen monetary policy or implement other measures if its 2% inflation target becomes difficult to meet.

Earlier in the week official data showed that Japan’s second quarter economic contraction was larger than initially estimated, and another report showed that the country’s current account surplus fell short of expectations in July.

The lackluster data indicated the economy is struggling to gain momentum and fuelled expectations for more stimulus from the BoJ.

The euro rose to two month highs against the weaker yen on Friday, with EUR/JPY up 0.56% in late trade. For the week the pair gained 2.17%.

In the week ahead, investors will be focusing on the outcome of Wednesday’s Fed policy meeting. Fed Chair Janet Yellen was to hold a press conference following the meeting.

Japan is to release what will be closely watched trade data on Thursday.

Monday, September 15

• Markets in Japan are to remain closed for a national holiday.
• The U.S. is to release reports on manufacturing activity in the Empire State and industrial production.

Tuesday, September 16

• The U.S. is to produce data on producer price inflation.

Wednesday, September 17

• The U.S. is to produce data on consumer prices. Later Wednesday, the Federal Reserve is to announce its federal funds rate and publish its rate statement. Fed Chair Janet Yellen is to hold a press conference following announcement.

Thursday, September 18

• Japan is to release data on the trade balance, the difference in value between imports and exports.
• The U.S. is to produce a flurry of economic data, including reports on initial jobless claims, building permits, housing starts and manufacturing activity in the Philadelphia region.

USD/CAD weekly outlook: September 15 - 19

The broadly stronger U.S. dollar rose to five-and-a-half month highs against the Canadian dollar on Friday amid growing expectations for an early hike in U.S. interest rates.

USD/CAD was up 0.51% to 1.1091 in late trade on Friday, the highest level since March 27. For the week the pair advanced 1.89%.

The pair is likely to find support at around 1.1025 and resistance at around the 1.1130 level.

Expectations that the Federal Reserve is growing closer to raising interest rates continued to bolster investor demand for the greenback.

A study by the San Francisco Fed published on Monday indicated that central bank officials see rates rising sooner than markets expect.

The Fed was expected to cut its asset purchase program by another $10 billion at its upcoming policy meeting next week which would keep it on track for winding up the program in October, and to start raising interest rates sometime in mid-2015.

Minutes from the Fed's July meeting indicated that the central bank was shifting its monetary policy stance towards raising rates from record lows.

Data on Friday showing that U.S. retail sales rose in August and another report showing that consumer sentiment rose to a 14-month high in September underlined the view that the economic recovery is deepening.

The greenback received an additional boost from increased safe haven demand after the U.S. and the European Union imposed a fresh round of economic sanctions on Russia over its actions in Ukraine.

Sentiment on the commodity linked Canadian dollar was also hit on Wednesday after official data showed that the annual rate of Chinese inflation rose less than expected in August, weighing on the demand outlook for crude oil.

Crude oil is Canada’s largest export and the country’s currency is sensitive to oil price fluctuations.

In the week ahead, investors will be focusing on the outcome of Wednesday’s Fed policy meeting. Fed Chair Janet Yellen was to hold a press conference following the meeting.

Market participants will also be closely watching Canada’s monthly inflation report on Friday.

Monday, September 15

• The U.S. is to release reports on manufacturing activity in the Empire State and industrial production.

Tuesday, September 16

• Canada is to release data on manufacturing sales.
• The U.S. is to produce data on producer price inflation.

Wednesday, September 17

• The U.S. is to produce data on consumer price inflation, which accounts for the majority of overall inflation.
• Later Wednesday, the Federal Reserve is to announce its federal funds rate and publish its rate statement. Fed Chair Janet Yellen is to hold a press conference following the announcement.

Thursday, September 18

• The U.S. is to produce a flurry of economic data, including reports on initial jobless claims, building permits, housing starts and manufacturing activity in the Philadelphia region.

Friday, September 19

• Canada is to round up the week with data on consumer prices and wholesale sales.