Dollar rally overnight as traders responded to a San Francisco Fed study. The report noted that "surveys, market expectations, and model estimates show that the public seems to expect a more accommodative policy than Federal Open Market Committee participants." Meanwhile, "the public might not give enough weight to how dependent the central bank's guidance is on both current and incoming data." Hence, the public could underestimate the conditionality and uncertainty of interest rate projections." Some analysts noted that the markets could have been awakened by the report and had started re-pricing those rate expectations.
The dollar index jumped to as high as 84.49 so far this week and is set to take on key resistance level of 84.75 (2013 high). Medium term momentum has been strong as seen in weekly MACD breaking the falling trend. 84.75 will likely be taken out by the current strong move. And in that case, the dollar index would target next key resistance zone of 88.70/89.62. And, there is prospect of reaching 100% projection of 72.69 to 84.75 from 78.90 at 90.96. We'll continue to monitor the possibility of such a strong trend. Meanwhile, near term outlook will stay bullish as long as 82.83 support holds.
Elsewhere, Sterling continues to be the weakest currency this month. The major event in the UK this month is undoubtedly Scotland's independence referendum on September 18. The latest polling result from YouGov shows that, excluding undecided voters, 'Yes' vote (51%) surpassed 'No' vote (49%) for the first time on September 6 on the question 'Should Scotland be an independent country?'. GBP/USD slumped more than -1.5% to 1.607 (as of September 9), the lowest level since November 2013, following the -1.6% selloff last week. The uncertain outlook, economic, fiscal, monetary, political, etc, in the continuing UK (rest of UK, rUK) after Scotland goes independent has been unnerving investors. Worse still, it appears that the British government has not prepared any contingency plan for the case of a breakup, although the BOE indicated that it has plans to provide emergency lending to Scottish banks in the case of deposit flight. The Scottish Government proposes that the Independence Day will be on March 24, 2016. That will ensure that the Scottish parliament elections would take place on May 5 2016 and there would be sufficient time for negotiation of various issues after the September 18 referendum. We believe the issues concerning investors the most are the currency and debt allocation/fiscal issues in UK.
On the data front, Japan tertiary industry index rose 0.0% mom in July. Australia home loans rose 0.3% in July, NAB business confidence dropped to 8 in August. UK BRC sales monitor rose 1.3% yoy in August. UK data will be a major focus today with trade balance, industrial and manufacturing production and NIESR GDP estimate featured. Canada will release housing starts.