20.09.201708:12 Forex Analysis & Reviews: The markets are ready for Fed's balance sheet reduction

EUR / USD, GBP / USD

The day yesterday was favorable for supporting the optimistic sentiments of European investors; the euro area balance of payments for July increased from 22.8 billion euros to 25.1 billion euros, while Germany's ZEW indicator of Economic Sentiment for September increased from 10.0 to 17.0, and the composite ZEW index for the euro area was 31.7 against 29 which is 3 points higher in August. With the release of positive US data, the risk appetite increased as well, then investors continued to buy back dollar currencies. The number of new house bookings in August was 1.18 million YoY against expectations of 1.17 million, and the previous figure was revised higher from 1.16 million to 1.19 million. The number of issued permits for the construction of new houses increased from 1.23 million, which is also revised higher from 1.22 million to 1.30 million, showing the most significant figure since June 2015. Outstanding expectations on US balance of payments no longer spoiled the mood with a forecast of -115 billion versus -123 billion, since the threshold of the national debt has been thawed. As a result, S&P 500 added 0.11%, euro gained 38 points, and after the increase of volatility in the previous days, the pound grew only by 4 points. The pound has a positive moment due to the statement made by Foreign Minister Boris Johnson on the resignation of Prime Minister Theresa May. PM May did not accept his proposals for Brexit, or more precisely if she would seek greater isolation of Britain in the so-called "Swiss" version. Theresa May will present the concept of "Brexit" on Friday.

Today, the markets are focus only on the Fed's decision regarding monetary policy and the plan to reduce the balance. As previously reported, the first three months will be reduced by $10 billion monthly and the next three months will increase to 50 billion every month. Investors admitted that the plan may be different, but this is unlikely since the Fed Reserve itself did not propose any other plan. Accordingly, we are waiting for the continuation of the stock market redemption and the counter dollar currencies with regards the continuation of the risky trend, keeping the objectives for the euro within the range 1.2110 / 35, and the pound at 1.3700.

USD / JPY

On Tuesday, the Japanese yen traded at an amplitude of 30 points, as the price remained almost unchanged during the closing of the day with an anticipation of further market impulses. Today, positive figures for the Japanese trade balance were issued, but investors unhurriedly buy the yen before the Fed's decision on monetary policy. The trade balance for August, taking into account seasonal fluctuations, came in by 0.37 trillion yen versus the expected 0.41 trillion. But July Trade Balance was revised from 0.34 trillion to 0.36 trillion yen, showing a general increase in the balance sheet. The total balance was 114 billion yen against the forecast of 94 billion. Exports increased from 13.4% YoY to 18.1% YoY, against the projected 14.7%. Imports decreased by 16.3% YoY to 15.2 YoY, the forecast was 11.8% YoY.

Japanese Finance Minister Taro Aso somewhat softened his tone towards the expected increase in sales tax from 8% to 10% by 2019. The minister agreed to support him only if the proceeds will purposefully support the education.

With the release of the Fed announcement and after the speech of Janet Yellen, we are looking forward to the USD/JPY growth to 112.75 and further to 113.40.