* USD/JPY touches one-month low, threatens chart support
* USD under pressure ahead of Fed meeting
* Market suspicious Fed may try to bolster dovish forward
* Plenty of event risk ahead with ECB and BoE meetings,
By Hideyuki Sano
TOKYO, July 29 The dollar slumped to a one-month
low against the yen on Monday, reflecting expectations that the
Federal Reserve will offer forward guidance this week that it
intends to keep interest rates low for some time.
The dollar index, which shed 1.2 percent last week
for its third straight weekly loss, is holding just above a key
chart support, a break of which could spur more loss-cutting in
The yen was the biggest mover in Asian trade, with the
dollar/yen falling 0.5 percent to 97.80 yen, having
fallen as low as 97.635 - its lowest since late June.
Bank of Japan Governor Haruhiko Kuroda said the bank's
quantitative easing plan is working well but his comments
provided only a limited boost to dollar/yen.
Instead, a big fall in Japanese share prices is prompting
some accounts, such as algorithm players, to automatically sell
dollar/yen, which has had high correlation with the Nikkei share
average ever since Japanese Prime Minister Shinzo Abe
pledged to adopt a bold strategy to end deflation.
The Nikkei is falling partly because a stronger yen hurts
Japanese exporters. But the relationship between the two asset
classes is complicated because a fall in shares could spark a
rally in yen as well, said Makoto Noji, senior strategist at
Years of deflation has made the yen a relatively strong
currency until Abe came to power late last year, pledging to end
deflation. "The yen seems to be moving on its own factors,
namely the fall in the Nikkei," Noji said.
The Nikkei fell 2.4 percent, hitting four-week lows.
The dollar has an important support point around 97.50 yen
from the bottom of Ichimoku cloud, a break of which would send a
strong bearish signal.
The dollar was also broadly under pressure ahead of a
two-day meeting of the Federal Reserve's monetary policy
committee starting on Tuesday.
JPMorgan strategist John Norman cited a Wall Street Journal
item last week that suggested the Fed would consider changing
its forward guidance in an attempt to convince markets that
rates will stay near zero for a long time to come - even if the
Fed does begin tapering asset buying.
"The article has raised the risk that the meeting outcome
will be more dovish than originally anticipated," said Norman.
Against this backdrop, the dollar index fell to as low as
81.499, its lowest level since June 20.
It has important supports around 81.50 from its 200-day
moving average as well as 76.4 percent retracement of its rally
from mid-June to early July.
Apart from the Fed, this week will be a busy week for
central banks with both the Bank of England and the European
Central Bank holding policy meetings.
"Our base case is for no significant changes at each of
these meetings, but the tail risks around the events have
certainly increased, particularly for the FOMC and the BoE,"
said JPMorgan's Norman.
The BoE and ECB are expected to repeat or refine their
respective versions of forward guidance that policy will stay
loose for an extended period.
The euro was hovering at $1.3276, flat on the day and
just below a five-week peak of $1.32975 hit on Friday. Option
barriers blocked the way around $1.3300 while the next major
chart target was the mid-June high of $1.3415.
The market is also bracing for a raft of major economic data
including manufacturing data from China and U.S. growth and jobs
figures this week.
The advance reading of U.S. gross domestic product (GDP) for
the second quarter on Wednesday is expected to show annualised
growth of just 1 percent.
The data will also be subject to major benchmark revisions,
the first since July 2009, which could raise the level of GDP
and perhaps change the past pace of growth.
Thursday sees a range of manufacturing data from around the
world, starting with the official China PMI. The market is
braced for a dip under 50 and a weak result will only
heighten fears of a hard landing for the world's second largest
economy as it struggles with a loss of growth momentum.
Friday features the influential U.S. payrolls report
with forecasts favouring a rise of 185,000 for July and a dip in
the jobless rate to 7.5 percent.
A strong report would support the case for the Fed to start
rolling back its stimulus in September and so underpin the