Markets Staying In Range As Consolidation Continues

The forex markets are still generally staying in tight range as consolidation continues. Yen is a bit softer in mid-Asian session but yen crosses are generally held below this week's high and thus there is no confirmation of breakout yet. Asian equities are broadly lower, track DOW's fifth day of decline overnight, by -61.33 pts. It should be noted that DOW is now close to the 55 day EMA at 15230 and might start to have some support. Treasury yields extended recent decline with 10 year yield dropping further to close at 2.614% comparing to near 3% level just earlier this month. Both 10 year yield and 30 year yield took out respective 55 days EMA and might head further south. And the development could continue to limit dollar's strength for rebound. In the commodity markets, crude oil's weakness should be noted as recent pull back seems to be accelerating and it might head further lower to 100 psychological level again in near term.

The talk on the timing of Fed's tapering receded much this week as nothing happened that would trigger adjustment in the expectations. Markets seem to be pricing in December tapering rather than October. But that would still very much depend on incoming job data. New York Fed Dudley said in a speech that an "exit from unconventional set of policies is certainly feasible." But he didn't comment on when Fed could start to taper. Earlier this week, he emphasized his support for keeping monetary policy support to the economy for now, but still planned to scale back QE later this year.

Meanwhile, the focus has shifted back to the debt ceiling issue this week. Treasury Secretary Lew warned that the measures to increase borrowing capacity temporarily could be exhausted by mid-October. And by that point, the US government would only have $30b in cash on hand. And, the daily expenditures could be as high as $60b.

On the data front, Eurozone M3 is expected to show 2.2% yoy growth in August. UK will release Q2 GDP final and is expected to be unrevised at 0.7% qoq. US will also release Q2 GDP final and is expected to be revised up to 2.7% annualized. The main focus, though, will be on job and housing data. Initial jobless claims are expected to rise to 319k in the week ended September 20. Pending home sales are expected to drop -1.0% mom in August.