The President of the Atlanta Fed, Dennis Lockhart said central bankers should focus on wage growth, as increasing labour costs will be a sign that the economy reaches full employment. Lockhart believes that muted wage pressures of around 2% a year are an evidence of a considerable amount of slack. Lockhart expects the Fed to start policy normalization in the mid-2015, in line with the recent comments from two key policy makers, as well as the market's consensus.
Meanwhile, Japan's economy contracted more than previously estimated, giving the government more reasons to proceed with the plan to delay the next sales tax hike and hold an early election. The nation's economy shrank 1.9% in annual terms in the third quarter, according to revised data, which underlined that the hit from April's sales tax increase turned out to be more devastating than expected. On a quarter-to-quarter basis, the Japanese economy contracted 0.5% in the July-September period, compared with a preliminary estimate of a 0.4% slowdown. The world's third-largest economy technically remains in recession, marked by two quarters in a row of GDP contraction.
US wholesale inventories to be released
Interestingly enough this is one of the few times, when more news from Japan are coming. However, it is not like US do not have anything to offer, as they release wholesale inventories that are expected to remain unchanged from the previous release. Meanwhile, in Japan many machinery related news are released.USD/JPY continues to reach new highs
At the first half of the year USD/JPY was trading almost completely flat, as it traded around the 102 level. However, at the second part of August the Greenback started to outperform the Japanese peer rather heavily. Currently, the pair has breached the 120 mark and for the time being it is supported by the support line and monthly R1 near the 121 mark, if this level holds then we might see the pair climbing even higher. Nonetheless, in case these levels do not hold the selling pressure then the pair is likely to slide below the psychological level of 120.Daily chart
The pair failed to breach the 122 level yesterday and since then it has started to decline. At the time of writing the pair has dipped below the psychological level at 120 and seems to be targeting the weekly S1 at 119.05. Additionally, the up-trend's support line has been breached as well; however, we do not expect this to be a beginning of a new trend. To our mind this is just a correction and most likely the pair will continue to hover around the 120 level.
Hourly chart