Japan’s CPI on Its Path to 2%, Eyes Turn on Next Week FED Decision - 26.7.2013

Japanese inflation data indicated that National CPI excluding Food increased to 0.4% for the month of June, higher than expected at 0.3%, also National CPI excluding Food and Energy released higher than expected and better than previous month but still remains negative at -0.2%. Despite improvement in inflation and being on the right path for achieving 2% target set by Bank of Japan, NIKKEI 225 dropped by 2.68%. The Japanese Yen though strengthened as the BOJ stimulus program appears successful with chances for further monetary steps decreasing. Thus the USDJPY retreated to 98.62 weighing on NIKKEI since they have been previously positively correlated. The pair is expected to move towards 2-week low at 98.28 amid intraday bias remains to the downside, testing daily reversal neckline.

The greenback against its major peers dropped to 81.58, penetrating key support at 81.90, despite stronger Jobless Claims and Durable Goods Orders on Thursday. In addition following General Motors EPS yesterday, Amazon reported -$0.02 compared to expectations at $0.05 EPS, Starbucks posted stronger than estimated but Expedia missed forecasted EPS. However, even the mixed earnings report and weaker greenback, US indices closed in green. Coming week would bring FED monetary decision with uncertainty on bond buying program pushing downward the US dollar value. Moreover, FED may change the wording for “forward guidance” concerning what macroeconomic targets need to be achieved and that could increase volatility.

To close, the EURUSD exploited greenback’s weakness, surging to cap at 1.3293, the AUDUSD earlier today managed to offset yesterday losses and rose back to resistance at 0.9313. On the data front there are not any major releases today with investors focus turning on next week’s central banks decisions.