Tuesday Morning Forex Outlook

This morning the commodity currencies rebounded as the greenback turned red again. The US dollar fell 27 points to trade at 94.25 as all eyes are focused on Janet Yellen’s Jackson Hole speech on Friday. Markets are looking for signals on how slow or fast the Fed will move toward increasing interest rates, with Fed policymakers split in recent months over the US economy’s strength and the prospects for strong inflation.

Fischer, whose views are usually in line with Yellen’s, said that the Fed was close to its policy targets on unemployment and inflation, and that he expects US growth to pick up in the coming quarters.

Today is again void of major data but there is a variety of second level reports that could spark some interest in forex trading. In the UK traders will have a chance to review consumer confidence as well as CBI industrial trends. UK data could spark some interest in the pound as post Brexit releases should give some indication of how the nation is recovering from the turmoil in June. The pound is trading at 1.31.86 up 0.41%.

Euro traders will see a wide range of manufacturing, services and composite PMI’s for the overall Eurozone. The euro is at the very top of its trading range gaining 0.26% points this morning to 1.1346.

In Asia this morning the Japanese yen gained 8 points against the weaker US dollar. The yen remains firm in the 100 price range.  It seems that the BoJ is unable to push the yen lower regardless of promises and threats from the banks governor. The Bank of Japan’s near doubling of its purchases of Tokyo shares is causing investors to worry the central bank will dominate financial markets, which could lead to price distortions as it continues to grease the economy.

The BOJ’s buying spree will make it harder for investors to sift good companies from bad, and raises a host of other problems including misallocating capital, making equities trading more speculative and reducing incentives for companies to meet shareholder needs, analysts say.

More than three years of massive monetary stimulus has already resulted in the central bank cornering the Japanese government bond market and distorting interest rates. The BOJ won’t hesitate to add stimulus based on discussions on the results of a review at its Sept. 20-21 meeting, he said in a newspaper interview published on the weekend.

The release of Japans manufacturing activity indicated that the sector was steadying. New orders and export orders still declined at a significant rate, forcing Japanese manufacturers to cut prices of their goods at the sharpest pace since October 2012 to attract new business.

Japan’s economic growth stalled in the second quarter as consumer spending slowed and exports contracted due to weak external demand and the impact of a stronger yen.

Elsewhere in Asia, the New Zealand and Australian dollar were both trading in the green. The Aussie added 0.24% points to 0.7647 on the weaker US dollar while the kiwi gained 0.59% points to 0.7326 after an address by Graham Wheeler this morning. Wheeler said leaving rates untouched wasn’t an option because it risked letting already low inflation expectations bed in, which would drive headline inflation lower. Wheeler reiterated his confidence in the underlying strength of the New Zealand economy.