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Market View

Kuroda Believes Japan Continues its Economic Recovery

Thursday, September 17, 2015 1:23 PM GMT

 -The Federal Reserve will raise interest rates Thursday at the conclusion of its two-day meeting for one very specific reason, closely followed market watcher Jim Grant said Wednesday. "I think they do it for the very human reason that Janet Yellen wants to change the subject as much as we want to have it changed. Just do it," the editor of Grant's Interest Rate Observer said in an interview with CNBC's "Closing Bell." He believes the increase will be 25 basis points. Wall Street experts seem to agree a rate hike will come Thursday. (Source: CNBC)

- Next 24-hr volatile events: SNB 3M Libor Target Range (07:30 GMT), FOMC Rate Decision (18:00 GMT), BOJ Meeting Minutes (23:50 GMT). (Source: StockTweets)

- The GBP was the best performing major vs USD on Wednesday with +0.97% spot returns while the JPY was the worst performing with -0.12%.  (Source: StockTweets)

- In contrast to the usually quite pre-FOMC trading, markets are surprisingly volatile today. US equity indices are all tacking on around 0.5-0.7%, the greenback is dropping, and commodities are rallying sharply. In addition to today’s big breakout in oil, Gold has also turned sharply higher, providing some relief for beleaguered bulls. In essence, the primary fundamental catalyst for today’s rally in the yellow metal was this morning’s US Consumer Price Index (CPI) report, which showed that price pressures in the world’s largest economy remain tame. (Source: FXStreet)

- BOJ’s Kuroda: Japan continues Economic recovery. Easing until 2% inflation rate is stable. (Source: BOJ)

- Swiss SECO: Expect the economy to remain very subdued in the second half of the year and to only strengthen during the course of 2016. GDP growth for 2015 is projected at 0.9%, with an acceleration to 1.5% in 2016. (Source: SECO)

- Given that we look for no hike in September and consequently think the FOMC will take the 2015 median Fed Funds ‘dot’ down to signal just one hike this year and lower the end 2016 median rate ’dot’, we believe the USD will come under pressure near term given that the market is pricing a non-negligible probability of a hike this month (some 25%). Looking at the betas from our Danske Bank Short-Term Financial Models, we observe that EUR/USD appears most sensitive to relative rates (2Y swap spread) among the G3 currencies and although a positive beta to risk appetite (Vix volatility), as mentioned above, complicates the near-term outlook, we judge that EUR/USD on the margin is in for a short-term bounce on a softer Fed. Given that both JPY and EUR currently trade as safe havens and that beta to risk appetite (Vix volatility) is identical for EUR/USD and USD/JPY (but opposite sign), we also expect USD/JPY to remain under pressure in the very short term. (Source: eFXnews)

- Today’s upcoming events: US House Starts, Fed Forecast, US Jobless Claims.

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