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Markets await US presidential debate

Bank of Japan (BoJ) Governor Kuroda reiterated that the bank is ready to use all possible tools in order to reach the 2% inflation target in the mid-term. Negative rates and a long-term rate target are seen as key additional steps. 

USDJPY remained flat in Tokyo, as the Nikkei and Topix retreated from their multi-month highs. The USDJPY started the week in a better shape following last week’s attempt towards the 100 level.

The pair tested 101.12, the 100-hour moving average in Tokyo, yet Kuroda’s speech gave once again the opposite reaction. It appears that a sharper dovish rhetoric from the Bank of Japan deteriorates its credibility. The critical resistance is eyed at 101.34 (a major 32.8% retracement on the Sep 14th to Sep 22th decline). Above this level, the pair will step in the bullish consolidation zone for a further upside attempt to 101.72 and 102.10. Nevertheless, the lack of market support is comparing the upside momentum in the USDJPY, as well as the entire yen complex.

Another story in focus today is Turkey’s downgrade to junk by credit ratings agency Moody’s. Moody’s downgraded Turkey’s credit rating to junk following the July 15th failed military coup attempt. The rating agency cited: “The risk of a sudden, disruptive reversal in foreign capital flows, a more rapid fall in reserves and, in a worst-case scenario, a balance of payments crisis has increased.” Moody’s stated that the deterioration in central banks independence and the repetitive interest rate cuts, despite failure to meet the inflation target, has eroded the country’s institutional strength.

USDTRY moved higher to 2.9828, the major 38.2% retracement on Jul 19th to Aug 16th retreat, signalling the end of the negative trend. Further deterioration in lira is expected to encourage a stronger US dollar towards the 3.00/3.05 zone.

In Europe, European Central Bank (ECB) President Draghi will be on a political tour with the ECB message, in hope of convincing politicians that their help is crucial for the economic recovery. The EURUSD is bid above 1.1205, yet bids are light and a move in the US dollar could outweigh the current positive bias in the euro, before the crucial presidential debate due later on today.

The first of three televised presidential debates between Hilary Clinton and Donald Trump will surely be in focus, and could impact sentiment in the market place.