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FX Daily160 .pdf


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FX STRATEGY | FX DAILY STRATEGIST

European Edition
30 October 2013
Non Independent Research – Marketing Communication



Japanese output surge supports the Nikkei……USDJPY to follow

Japan's factory output rebounded in September to its highest level in nearly one-and-a-half years at 5.4% y/y. It was largely
strong domestic demand from the government's stimulus package behind the rise. The rise bolsters opinion that Japan is
recovering. For the JPY, the clearest relationship remains that between Japanese equities and the USDJPY. The Nikkei has
responded positively to this news and we believe USDJPY should follow higher too.



USD should not fear the Fed this time

Fed meetings have not been friendly to the USD this year, with the dollar weakening following every meeting in 2013 with the
exception of June (see Chart). However, with markets already having adjusted to a much more dovish view on the Fed outlook
heading into today’s meeting, we think the USD is likely to hold up better this time. The combined effects of three weak
employment reports, the no-tapering surprise at the September FOMC meeting, and the after effects of the government
shutdown have seen the big long USD position which prevailed for much of this year erased. Our BNP Paribas Positioning
Analysis suggests the market is now actually running a short USD position, and the ability of the dollar to gain back ground this
week despite rather soft data also suggests USD positioning is running uncomfortably short into the meeting. While we do not
anticipate significant changes in the FOMC’s statement today, to the extent the meeting could drive a currency market reaction,
we see more scope for USD upside than downside, particularly vs. the EUR, GBP, CHF and JPY. On the data front ahead of
the FOMC decision we will get September CPI which should be fairly neutral in impact, with the core y/y rate likely to hold
steady at 1.8%. The ADP employment report may get more attention, especially with the official October employment report
delayed a week from its original Friday release timing.



CPI may add to EUR’s struggles

The pullback in EURUSD on Tuesday without a clear news catalyst highlights the near-term vulnerability of USD shorts that
have been built up since the resolution of the US debt ceiling impasse. Indeed, the EUR has struggled to take advantage of
positive headlines this week, including comments from the ECB’s Nowotny who appeared to backtrack from his previous
remarks on the EUR saying that the ECB had few tools to counter the strength in the currency. Inability to rally on this
supportive news suggests the EUR is vulnerable into key CPI data this week, which is in our view likely to highlight the ECB’s
inflation undershoot. Preliminary CPI data from Germany, Spain and Belgium is due today ahead of the eurozone CPI estimate
tomorrow. In terms of activity data, our economists are below market consensus for both the October eurozone economic
sentiment but expect some further improvement in the German labour market. Elsewhere, NOK has performed strongly this
week, a trend that should persist if September retail sales print in line or above the market expectation for a 0.5% m/m gain.

DXY sold off after every FOMC meeting except June

Reuters Ecowin, Bloomberg, BNP Paribas

GMT

Country

08:00
08:05
08:55
09:00
09:00
09:30
10:00
10:30
12:00
12:00
12:15
12:30
12:30
12:30
12:30
14:30

CH (Oct)
EU
DE (Oct)
EU (Oct)
EU (Oct)
DE
IT
EU
DE (Oct)
DE (Oct)
US (Oct)
US (Sep)
US (Sep)
US (Sep)
US (Sep)
US

18:00 US

Release

BNPP Mkt Last

KoF Leading Indicator
1.59
1.53
1.6
ECB's Constancio speaks in Brussels
Unemployment K
-5
-5
25
Economic Sentiment
96.9 97.2 96.9
Consumer Sentiment
-14.5 -14.5
Germany to sell EUR 4 bln of 2% 2023 Bunds
Italy sells 3 year, 10 year bonds
ECB's Costa speaks at OMFIF in London
CPI (Prel) % (y/y)
1.4
1.4
HICP (Prel) % (y/y)
1.5
1.6
ADP Labour K
140 160
166
CPI % (m/m)
0.1
0.24 0.2
Core CPI % (y/y)
1.8
1.8
1.8
Core CPI % (m/m)
0.1
0.16 0.2
CPI % (y/y)
1.2
1.2
1.5
EIA Oil Inventories
5300 K
FOMC Rate
0.125
Announcement %


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