Main events of the week are:
Monday 25 September – German election and NZD elections; both failed to obtain majority;
BOJ Gov Kuroda Speaks; ECB President Draghi Speaks;
Tuesday 26 September for USD – CB Consumer Confidence; FED Chair Yellen Speaks;
Wednesday 27 September for USD – Crude Oil Inventories; for CAD – BOC Gov Poloz Speaks; for NZD – Official Cash Rate and RBNZ Rate Statement.

EUR seems to be affected by Merkel’s results which performed weaker than expected. Now a coalition is needed meaning a ‘Jamaica’ Coalition with the FDP and Green Parties is possible. Anyway, German elections is not a main driven factor for euro evolution. Most important for its evolution is inflation who is admitted to be still soft, lower than expected, but reflation is ongoing according to Swiss private bank Edmond de Rothschild.
As some of you know the ECB suggested that it would announce the end of QE. Lyxor’s senior credit strategist Lionel Melin thinks it is likely that the ECB will announce the end of its quantitative easing programme during its October session. That’s why October’s meeting is expected to be a very important one.

The Bank of England is expected to raise rates in coming months, the raise will be data dependent.

From Bank of Japan, there are no signs of a big change. BOJ is ready to continue actual monetary policy and buying assets in order to maintain the 10-year Japanese Government Bonds at its 0% target. It’s hard to tell when BOJ will reach the inflation target of 2% especially since BOJ postponed the deadline for it.
PM Abe announces the dissolution of lower house. The election is rumored to be on 22 October.
CAD is quite since Friday. It is influenced by oil price, but the price was flat Monday morning, then Brent crude oil jumped towards $58 a barrel for the moment. OPEC Sec-Gen Barkindo says that OPEC will keep pressing ahead with their efforts until they reach their goal of a fully balanced and growing, sustainable global oil market and industry. The boost in oil price is given by treats that come from Turkey to Iraqi Kurdistan for organizing an independence referendum.
“We have the tap. The moment we close the tap, then it’s done,” President Erdogan said and warned Erbil that Turkey has controls over the pipelines through which the autonomous region’s oil reaches international markets according to Financial Times.

At RBNZ Rates Meeting no change in the communication is expected according to analysts from BoFA.

USD: FOMC’s statement was more hawkish than traders and investors had hoped. This is a good thing for USD. As expected, the FED keeps rates on hold and plans to start the balance-sheet reduction in October. The statement was quite optimistic about growth and employment. The “dot plot” chart for September showed median expectations for 2017 and 2018 which remain at 1.4% and 2.1%. Another rate hike is on the table until the end of the year and another 3 hikes in 2018. According to Bloomberg WIRP, chances for a December hike are 63.8% from 53.2% previously.

NZD: There is no doubt that NZD is driven by political factors. Financial Times said that a new poll shows the governing National Party could rule alone after the country’s general election on September 23. The economist Shamubeel Eaqub said in an interview for Financial Times on September 12 that the kiwi had been spiking up and down on the polls and it’s most likely this will continue to happen until Saturday.

JPY: BOJ left its target interest rates and asset purchase program unchanged as expected. In a Bloomberg survey, 45 economists agreed on the possibility of no change in monetary policy. The vote was 8-1, with Goushi Kataoka objecting.

EUR: Before FOMC some ECB members were concerned about euro strength. With that in mind, the October meeting could be a very important one because ECB members will decide on their 2018 quantitative easing position and whether to adjust its forward guidance.

Today I will start my analysis with NZD, which is in focus because of the national elections in New Zealand. The last poll suggests that the National Party has the lead over the Labour Party with 47%. Analysts from Citibank cite a report that says there’s a possibility, in case of a victory, for the Labour Party to require the RBNZ to consider job market conditions when deciding over monetary policy. Labour Party is in favor of implementing policies to limit immigration. In such a situation, NZD may be restrained. RBNZ is expected to keep rates on hold until the end of the year.

Analysts from Bank of New Zealand suggest that if the FED goes on with rate normalization — meaning a rate hike in December and more hikes in 2018 — the market will be seen to under-price the change of FED hikes through the end of the year.

Based on their point of view, if they are right, the NZD could move under 0.70 next year and, if they are wrong, then easy US monetary conditions will support higher levels of risk appetite and a stronger NZD than expected.

Taking a look at NZD/USD on MN chart we see a possibility for a correction until 0.7705 even if it seems less likely until the end of 2017.

But it looks like we will have to wait a long time until NZD/USD reaches that level. Taking a closer look we have the H1 chart which to me is neutral. I have a scenario for a possible move, as shown in the image below, and if that move happens, I will look for a sell limit.

If NZD/USD doesn’t cross 0.7320 and then goes back to 0.7220, I will look for a sell limit at 0.7290. If NZD/USD reach 0.7320 and cross over 0.7345 I will probably look for a buying opportunity. Updates to come. I will wait for the first scenario and then take an action. Now for me NZD/USD is neutral.

If NZD/USD instead reaches 0.7320 and crosses over 0.7345, I will probably look for a buying opportunity. Updates to come. I will wait for the first scenario and then take action. To me, NZD/USD looks neutral right now.

Happy pips!

Monday 18 September – Eurozone CPI (yoy) came as expected 1,5%;
Tuesday 19 September for EUR – Germany Zew Survey expectation 32.4;
Wednesday 20 September for USD – Federal Open Market Committee Interest Rate decision;
Thursday 21 September for JPY – Bank of Japan Interest rate decision.

It’s no doubt that spotlight is on FOMC and BOJ. The FOMC is expected to keep rates on hold and to announce the tapering of its 4,5 trillion USD balance sheet. As always, the FED is preparing the market and makes its decisions predictable.

Analysts expect only one hike this year, most likely in December, and two hikes next year. The market will wait to see if any modifications occur on “dot plot.” Taking into consideration the rumors of no further rate rise this year, this will be a dovish signal by the markets.

For the BOJ things are simple because it is expected to leave its Policy Balance Rate and the 10-year Japanese government bond yield target unchanged, at -0.1% and around 0%, respectively. Personally, I don’t exclude a surprise in changing the target amount of Japanese government bond buying coming from the BOJ, even if it’s less likely.