1. Themes for the week
- FOMC faces a key decision whether to raise rates for the first time in this cycle. USD likely neutral before the decision. Opinions are mixed on expecations, but Fed Funds not discounting a hike yet.
- Concerns about China likely to continue to weigh on markets. Risk on/off can be guided by this, so watch Industrial Production for clues, with an eye on the wires for PBOC intervention as well. For now though, equity markets remain range-bound waiting for FOMC.
- China slowdown much more a risk factor for EM FX than DM FX.
- GBP inflated by bullish rhetoric from Forbes. This week, we also have UK inflation which could surprise on the upside. Gbp crosses could be good places to look for opportunities.
- BoJ policy announcement to add volatility to Jpy pairs. No adjustment expected, but into the Oct. 30th outlook, lower commodity prices and downward revision in CPI could require more action. As a reminder, any accomodative measures are usually Jpy negative (risk positive).
2. Charts illustrating these themes
Generally I prefer to stay away from the USD pre-FOMC. Instead I’ll be watching crosses for opportunities. Comm-dolls (Aud, Nzd, Cad) remain the weakest of the pack for now, while Gbp along with the Euro (to a certain extent) are the stronger currencies for now. Global Equities stuck.
Good Luck this week!