US Housing Points To QEfinity

A surprise drop in US pending home sales demonstrated the difficulty the Fed faces as it ponders when to scale back bond purchases. The kiwi was the top performer and the Swiss franc lagged but market moves were small. Japan releases employment and retail sales data later.

Pending home sales fell 5.6% compared to a flat reading expected in the worst report in three years. The numbers were from September, before the shutdown soured moods even worse. Industrial production rose 0.6% vs 0.4% expected but the effect was mitigated by downward revisions.

Overall, the market was in a struggle for direction. The euro tried the top and bottom of the recent range but was left stranded. EUR/USD has been in a 90 pip range for the past four sessions.

USD/JPY was even tighter as it languished in a 20 pip range for most of the day on Monday. Soggy weather in London likely kept traders away from their desks. The good news is that periods of near-nil trading are often broken by decisive moves.

Those moves could come Tuesday on the US retail sales report or a day later on the Fed decision. There is no realistic chance of a change in Fed policy but the official line from the Fed remains a base case for tapering before year-end. How they tweak that language could send a strong signal.

In the hours ahead, the focus will be on Japan. Dovish comments from the BOJ gave USD/JPY a small lift Monday and economic data could sway the pair further. Retail sales are expected to rise 0.% in September and the jobless rate is expected to slip to 4.0% from 4.1%.