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03.11.2021 07:20

EUR/JPY recovers well from sell-off into the FOMC

  • EUR/JPY holds steady ahead of the main FOMC event today. 
  • Eurozone data is also in focus and so too will be equities. 

EUR/JPY rallied in Europe from a low of 131.47 to a high of 132.10 recovering from the drop in EUR/USD that slipped from 1.1610 to 1.1580. Equity market sentiment remained upbeat, the Russell 2000 joining the S&P 500 in printing record highs which helped to keep the equity tracking cross supported. At the time of writing, EUR/JPY is trading at 131.98 and is exte to remain subdued with Japanese holidays and the forthcoming conclusion of the Federal Open Market Committee meeting. 

In data overnight, Manufacturing was slightly weaker than expected in October for the euro area. Manufacturing slowed in Germany and France but lifted in Italy. The main weakness in the series last month was in output, which fell 2.4pts to 53.3. Meanwhile, the Markit Services PMIs for Europe and the UK will be the final release for the month. September’s Euro Area unemployment rate report will reflect continued recovery. 

FOMC in focus

As for the main event, the FOMC has the market positioned for a tapering announcement following guidance from the central bank which has managed expectations perfectly in terms of preparing the markets for what is likely to be speed tapering.  

'Most officials seem to agree that it’s better to get tapering over as quickly as possible in order to leave the Fed maximum flexibility to hike rates when needed,'' analysts at Brown Brothers Harriman explained. ''We believe that the most likely path for tapering has already been flagged by the Fed, which would reduce asset purchases by $15 bln per month ($10 bln UST and $5 bln MBS).''

Equities will be a key component to the performance in EUR/JPY today and the outcome of the Fed will be crucial in terms of things of a rate hike and the implications for stock markets built up on cheap money. With that being said, there could be more fireworks in US jobs data this week. The employment component of 52.0 is the highest since July when 57k manufacturing jobs were added out of 1.09 mln total NFP gain.  All in all, this was a very solid report,'' analysts at Brown Brothers Harriman said. ISM services PMI will be reported Wednesday and so too will the ADP jobs report.  The current consensus is 450k and we suspect it will creep higher.  

 


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