USD/JPY Fundamental Analysis September 2, 2014 Forecast

The USD/JPY soared on Friday and continued on Monday to trade at 104.18 as the greenback continued to gain momentum and the JPY eased on lackluster data and the need of the Bank of Japan to add additional stimulus. On Friday Japan released its monthly data dump which was overall disappointing. It seems that the sales tax increase remains a problem much more than expected and the lack of salary increases and job growth is also falling behind. Industrial production should be through the roof with the lower valuation of the JPY but this is not the case. After an expansive quantitative easing program, one much bigger relative to the size of the Japanese economy than the quantitative easing undertaken by the Federal Reserve, has been the one element of Prime Minister Abe’s economic program (“Abenomics”) that has clearly been successful. QE is the first “arrow” of the program. The other two “arrows,” fiscal policy and economic reform, have been notably less effective. Economic reforms have been modest thus far, and the net effect of fiscal policy has been negative due to the consumption tax increase in April.

As the extent of the second-quarter pullback in the economy became evident, an increasing number of observers have asked whether “Abenomics” is failing. Friday’s lead editorial in the Financial Times was titled “Abe must keep his project on track – Japan’s economic recovery hangs in the balance.” It is evident that moving the economy onto a positive and sustainable growth path will require the Bank of Japan to maintain, and probably increase, its massive monetary stimulus well beyond the end of this year.

Kuroda’s remarks at Jackson Hole imply that the BOJ is committed to this course. “We will continue our current monetary policy, but if there is anything which could derail our course toward the 2% inflation target, we will not hesitate to change or adjust our policy.”

USD/JPY Weekly Fundamental Analysis, September 1-5, 2014 Forecast

After surging to the upside the previous week, the USD/JPY had only a slight follow-through to the upside last week. The current upside momentum suggests traders may make a run at the December 2013 top at 105.434 over the near-term.

Last week’s strength was fueled by upbeat U.S. data that indicated the economic recovery was on track. Gains were capped, however, by safe haven buying that boosted the Yen. The escalating conflict between Ukraine and Russia was the catalyst behind this.

U.S. markets are closed on Monday, September 1, but traders will get the opportunity to react to the latest Capital Spending news from Japan. The report is expected to show a drop from 7.4% to 3.8%.

Thursday could be a volatile session because of a number of U.S. reports. The two key reports to watch are the Challenger Jobs Cuts report and the ADP private sector jobs report. Both could be used by traders to gauge the outcome of Friday’s major U.S. Non-Farm Payrolls report. In addition to the U.S. data, the Bank of Japan is scheduled to release its latest monetary policy statement. This will be followed by the BOJ Press Conference. The BOJ may comment on the two-month decline in the Yen and how it is expected to affect the economy.

The week ends with Friday’s U.S. Non-Farm Payrolls report. This report could set the tone for the month. Traders are looking for a total of 222K new jobs. If the actual number exceeds the estimate then look for the USD/JPY to surge with 105.434 a potential target.

The wildcard this week will be the conflict between Ukraine and Russia. If it turns extremely violent then money may flow into the Yen for safety, putting a lid on any upside action by the USD/JPY.

EUR/USD Weekly Fundamental Analysis, September 1-5, 2014 Forecast

The EUR/USD gapped lower from the start, setting a bearish tone for the week. The move was triggered by comments from European Central Bank President Mario Draghi at Jackson Hole on August 22. In his comments, Draghi mentioned the ECB was considering additional forms of stimulus, including quantitative easing.

The selling pressure drove the EUR/USD to its lowest level since September 2013. Some of the selling pressure was triggered by bullish U.S. housing data and a jump in consumer confidence. Also helping to put the heat on the Euro was the drop in the annual rate of inflation in the Euro Zone from 0.4% in July to 0.3% in August. This put it at its lowest level in five years.

The U.S. markets are closed on Monday, September 1 due to a bank holiday. Trading volume may be light, but traders may react to the German Final GDP number if it misses the forecast of -0.2%. The Final Manufacturing PMI figure could also move the markets if it doesn’t meet the forecast of 50.8.

The key report to watch on Wednesday, September 3 is Retail Sales. Euro Zone retail sales are expected to show a drop of -0.3% from 0.4%.

On Thursday, September 4, the ECB will announce its benchmark interest rate. A press conference by President Mario Draghi will follow the announcement. Draghi may announce additional stimulus measures including the implementation of quantitative easing. This action tends to weaken the currency. Today’s session should feature volatility and a possible two-sided trade. Remember that no one is certain how much of any bearish news has already been baked into the market.

Germany Factory Orders will be featured early on Friday, September 5. Look for a 1.6% gain, following a 3.2% loss in July. After this report, trader focus will shift to the U.S. Non-Farm Payrolls report. Traders estimate the economy added 222K new jobs to the economy. Average Hourly Earnings will be watch closely. Traders are looking for an increase of 0.2%.

GBP/USD Weekly Fundamental Analysis, September 1 – 5, 2014 Forecast

The GBP/USD closed higher last week. The market posted a weekly closing price reversal bottom which was the result of end-of-the-month position squaring and some light short-covering ahead of this week’s Bank of England meeting. Volatility and volume were light as many of the major players took off for what many consider to be the last week of summer. Monday’s U.S. bank holiday also played a role in the diminished trade.

Fundamentally, some believe that the stable trade last week represents buyers who are holding out hope for an early rate hike by the Bank of England. A follow-through rally this week will add to their conviction.

On Monday, September 1, look for traders to react to the latest data on Net Lending to Individuals. This report is expected to show a slight drop from 2.5B to 2.4B. The Manufacturing PMI report will also be closely watch. This report is expected to show a slight setback to 55.1 from 55.4. Finally, since housing is often mentioned as a major concern by traders, today’s Mortgage Approvals number could also move the market. The baseline number to watch is 66K.

Tuesday, September 2 features the latest data on U.K. Construction Spending. This report is also expected to show a decrease from the previous month to 61.5 from 62.4.

The key report to watch on Wednesday, September 3 is the Services PMI. Look for a reading of 58.6 versus 59.1.

The Bank of England will release its latest monetary policy statement on Thursday, September 4. BOE officials are expected to leave the benchmark interest rate at 0.50% as well as the monthly stimulus. At the last meeting in July, two members voted to raise interest rates. This could be a sign that the central bank is moving closer to raising rates.

On Friday, September 5, the focus will be on the U.S. Non-Farm Payrolls report. Traders are pricing in a reading of 222K versus 209K last month. Watch the Average Hourly Earnings number closely. This could set the tone for the day. Early estimates are for an increase of 0.2%.

GBP/USD forcast for the week of September 1, 2014, Technical Analysis

The GBP/USD pair bounced during the course of the week, and closed just above the 1.66 level. That being the case, the market looks as if it’s ready to go up to the 1.68 handle, so therefore a break above the top of the range for the previous week has us aiming for that level. We believe that this market will more or less go sideways in the meantime, with an upward bias. There is a massive amount of support just below the 1.65 handle, so selling doesn’t make sense.