FX Dictated by JPY Pairs by Korman Tam

The dollar was mixed, edging higher versus the yen but falling against the euro and sterling. Economic data from the US saw wholesale inventories grow in August by 0.1%, but lower from the prior month at 0.3%. The greenback will likely remain confined to recent ranges ahead of key reports due out later in the week, including August trade balance, PPI, retail sales, business inventories, and University of Michigan consumer sentiment survey.
Euro Rebounds

ECB Board member Liikanen delivered a hawkish tone in his speech on Wednesday, reiterating the upside risks in price stability. While he sees potential for market turbulence to create downside uncertainty for growth, but policy decisions are separate from measures to address volatility – adding that the Bank would not bail out failed investors. Liikanen commented on exchange rates, saying euro levels were not a target, but rather a source of information. Meanwhile, the ECB’s Gonzalez-Paramo said that foreign exchange rates should be reflective of fundamentals, with volatile rates detrimental to growth. He added that the market turmoil has increased growth uncertainties in the Eurozone, but the crisis is too short term. The ECB is largely expected to lift interest rates by another 25-basis points to 4.25% by year-end given the current outlook for inflation and growth.

Traders will turn to Q2 GDP from the Eurozone, which is expected to be revised lower from the initial reading. Eurozone Q2 GDP is seen declining to 2.5%, down from 3.2% and at 0.3% versus 0.7%.

EURUSD holds steady above the 1.41-level at 1.4120. Support begins at 1.41, followed by 1.4065 and 1.4020. Subsequent floors will emerge at 1.40, backed by 1.3960 and 1.3930. On the upside, resistance is seen at 1.4160, followed by 1.42 and 1.4240. Additional gains will target 1.4280 – the pair’s all-time high, followed by 1.43 and 1.4350.

JPY Slumps across the Board

The yen fell against the majors early in the Wednesday session as traders jumped back into the carry trades, pushing euro/yen to 166.23, aussie/yen to 105.61 and sterling/yen to 240.36. By late New York trading, the yen recouped some of its losses to stabilize ahead of the BoJ meeting and monthly report on Thursday.

The Bank of Japan is not expected to change policy given the current global economic scenario. Data to be released from Japan will also see August machinery orders, which is expected to reverse July’s 17% increase, declining by 6%.

USDJPY holds steady near the 117-level, with resistance eyed at 117.60, followed by 118 and 118.40. Subsequent ceilings are seen at 118.75, backed by 119 and 119.50. On the downside, support begins at 117, backed by 116.70 and 116.30. Additional floors will emerge at 116, followed by 115.60 and 115.25.