THE TAKEAWAY: US consumer confidence has improved to its highest level since July 2007, mainly on the back of an improved housing market > Strong print does little to offset speculation that the Federal Reserve will reconfigure its forward guidance to more dovish > USDJPY BEARISH
The USDJPY’s late-week slide has continued after the US cash equity open following the release of the final July U. of Michigan Consumer Confidence report. The USDJPY, which has been under pressure all night amid selling in Asian equity markets following a stronger than expected Japanese inflation report, continues to be the best barometer for QE3 “taper” expectations for the Fed. The move lower suggests today’s data just isn’t ‘good enough.’
Here’s the print that’s pushing the buck lower across the board:
– U. of Michigan Consumer Confidence (JUL A): 85.1 versus 84.0 expected,from 83.9.
Despite hitting the highest reading since July 2007 – a six-year high – investors remain squarely focused on the Fed’s meeting on Wednesday in the wake of rumors that a new form of forward guidance is being considered. Forward guidance is the communicative policy tool Fed officials have been using to suggest that policy will be aimed at keeping rates lower for an extended time period, currently through 2015.
Thus, if the Fed is considering changing the criteria that help determine its monetary policy (tilted more dovish), then forward guidance would be altered to suggest an even more extended period of low rates (say, through 2016). Such a shift is inherently US Dollar negative as it takes away a prime fundamental reason for US Dollar strength the past few months.
USDJPY 1-minute Chart: July 26, 2013
Charts Created using Marketscope – prepared by Christopher Vecchio
Following the release, the USDJPY initially traded up from ¥98.30 to as high as 98.39 on the stronger headline print, before sliding to fresh session lows at 97.97, also the lowest level since June 27. At the time this report was written, the pair had rebounded to 98.08.
— Written by Christopher Vecchio, Currency Analyst