US Treasury threats as ECB QE steps up

The US treasury department published its FX report late in the US session on Thursday. There had been speculation that there would be criticism aimed at Asian Central banks after the semi-annual report in April 2013 had criticised Japan’s FX policy following the introduction of QE, and accused Japan of deliberately targeting the JPY. The warning certainly spooked the FX market as USD/JPY dropped from 103 to 93 in twelve weeks.

US officials are due to meet their Japanese counterparts over the coming months to discuss trade policy, and with the local election in Japan approaching, the Abe administration will be looking to avoid any criticism. The report stopped short of naming Japan as a currency manipulator but did use a stronger tone with suggestion the 120 level reflects fundamentals. The report did however strongly criticise the Korean authorities suggesting that the BOK should only use intervention in exceptional circumstances or disorderly markets and not as a tool to weaken the won.

The second tier jobless claims data sparked a fresh dollar rally yesterday as this along with the hawkish FOMC minutes on Wednesday has seen 10 year US treasuries rally. The market is now fully pricing in a weaker Q1 US GDP reading following last Friday’s dismal NFP data as the consensus view is that we will see the same bounce-back recovery that we experienced in Q2 2014, with solid revisions to the Q1 weather distorted readings.

The CAD will be the data focus today with the market expecting a flat reading on jobs data as expectations range from -10k to +10k. US retail sales next Tuesday will be the next test for the dollar.

EUR/USD
Supports 1.0580-1.0490-1.0460 | Resistance 1.0630-1.0690-1.0715

USD/JPY
Supports 119.80-119.45-118.80 | Resistance 120.60-121.55-122.45

GBP/USD
Supports 1.4610-1.4550-1.4500  | Resistance 1.4750-1.4820-1.4900