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  • richard evans

FOMC likely to remain on hold, Japan steps up verbal intervention

Good morning, welcome to November.

For this week, US data releases will be one hour earlier at 12.30 or 14.00 london time due to the clock changes.

In addition, FX option expiries will be 14.00 london time, not the usual 15.00 london time.

We saw the US dollar weaken further yesterday morning with GBPUSD reaching 1.2200 and EURUSD reaching 1.0675, the latter surprisingly finding support as well after the GDP and inflation numbers which in my mind weren’t particularly good. However, a stronger than expected US employment cost index reading sent the dollar higher, with both GBP and EUR giving up all of their hard earned gains, trading back to 1.2120 and 1.0575 through the afternoon. Even a weaker US Chicago PMI number failed to stop the dollar rally.

This morning GBPUSD is a touch higher at 1.2155 while EURUSD has failed to match those gains and has slipped a bit further to 1.0565, in turn sending GBPEUR back up to 1.1500 having traded as low as 1.1425 yesterday, levels not seen since early May.

USDJPY pushed higher yesterday on the back of the USD strength, trading up to 151.70 overnight. However a bout of verbal intervention took the paid back to 151.15. This time it was MoFs Kanda who said Japan are on standby to intervene if necessary and that judgements are being made in a state of urgency. He also added that FX moves have not been in line with fundamentals. Japan FinMin Suzuki also made similar comments. Japan are far more likely to act if yen depreciates due to speculative trading rather than fundamentals, so Kanda’s comments are possibly more forceful than usual. Interestingly it has been confirmed that there was no official intervention back in early October when USDJPY moved from 150.15 to 147.30 in a straight line.

Sorely tempted to look at some short dated downside trades, a Monday expiry 150.00 USDJPY put costs around 40 yen pips, As always with an intervention play, it is all about timing and it would be easy to pay a lot of premium over time for little or no benefit. However as this takes in the FOMC rate announcement and US nonfarms, as well as a few days of possible BoJ action, there is some added value.

FOMC rate announcement this evening where we expect Fed to keep rates unchanged and offer a very similar statement as before, along the lines of ‘door open for further rate rises if needed, rates high for long period of time, don’t expect rate cuts any time soon’. There are many thinking US rates will remain on hold now into 2024 although Fed do face the issue of falling inflation but a pretty strong economy, which perhaps makes getting inflation back to target a pretty difficult task. I wouldn’t be surprised if inflation targets are very gradually increased over time, although I think I’ve said this before and nothing has happened as yet.

In the Middle East, Israeli ground offensive continues in Gaza, The concerns over escalation seem to have abated slightly despite Yemeni Houthis saying it has attacked Israel and will continue to do so. However there seems to be more talk of whether Israeli attacks on Gaza are disproportionate, although Israel remain committed to wiping out Hamas, even the fate of the hostages Hamas took back on 7th October plays second fiddle to Israels aims. Meanwhile the FBI has warned that the Hamas attack could inspire violent attacks against the West by extremists and urges people to be vigilant.

In other news, weather warnings have been issued ahead of Storm Ciaran with winds up to 80mph expected in some areas. Heavy rain, on top of the rain from Storm Babet last week, could lead to increased chances of flooding. So far the warnings don’t seem to be reaching my area although we are in for some pretty poor weather tonight. Mark, down on the Isle of Wight, is likely to be seeing heavy rain and high winds with a fairly serious amber warning of wind for early tomorrow morning. Batten down the hatches.

- 12.15 US ADP employment

- 12.30 CAD manufacturing PMI

- 12.40 SNBs Jordan speaks

- 14.00 US manufacturing ISM, JOLTS job openings

- 18.00 FOMC rate announcement

- 18.30 FOMC press conference

- 00.30 AUS trade balance

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